A USA multinational is considering a European opportunity. The multinational is considering an initial investment of 12,000. The size and timing of the before interest and taxes cash flows is as follows:

Year 1 2 3 4 5

EBIT () 800 600 700 1000 650

The following information is provided:

Inflation in US $ = 4.2%

Inflation in the Eurozone, = 7.2%

Corporate tax rate in Eurozone, T = 40%

Cost of Equity to an unlevered USA firm, Kud = 15.2%

Current spot exchange between the US Dollar and the Euro is = $1.31/

Required:

Using NPV method, appraise this project from the USA shareholders perspective and advise them accordingly