A US-based company is considering an investment in a Romanian manufacturing facility that would require an investment of 25 million euros at an exchange rate of 1.25USD/EUR. That investment will be depreciated on a straight line basis for a 10-year period (even though the explicit forecast is only for 4 years, the annual depreciation amount should be based on this 10 year assumption). There is also a necessary one-time increase in NWC of 750,000 euros. (Because this project is assumed to be a going concern, there is no return of NWC at the end of the projection period, and it is assumed that all increases in NWC can be internally generated so that no additional charge is necessary.) Information on the expected spot rate, forecasted demand and prices, and variable and fixed operating expenses is provided in the table below. The firm assumes the relevant cost of capital is 14%,

the applicable tax rate is 20%, and the assumed terminal growth rate is 2%.

To clarify, all investment at the beginning of the project is in euros, but all products are exported to the US so that revenue is in USD. Variable costs, fixed costs, and depreciation are all measured in EUR and converted to USD. Taxes are paid in USD.

Compute NPV and IRR of the project. (A potentially appears below.) Is this a good project for the company to invest in?

\begin{tabular}{|l|r|r|r|r|r|} \hline Year & 0 & 1 & 2 & 3 & 4 \\ \hline Investment & & & & & \\ \hline NWC & & & & & \\ \hline Revenue & & & & & \\ \hline Variable costs & & & & & \\ \hline Fixed costs & & & & & \\ \hline Depreciation & & & & & \\ \hline EBT & & & & & \\ \hline Taxes & & & & & \\ \hline Net income & & & & & \\ \hline Add back depreciation & & & & & \\ \hline Cash flow & & & & & \\ \hline Terminal growth rate & & & & & \\ \hline Terminal & & & & & \\ \hline Total CF & & & & & \\ \hline & & & & & \\ \hline WACC & & & & & \\ \hline NPV & & & & & \\ \hline IRR & & & & & \\ \hline \end{tabular} \begin{tabular}{|l|r|r|r|r|r|} \hline Year & 0 & 1 & 2 & 3 & 4 \\ \hline Spot rate & 1.25 & 1.28 & 1.32 & 1.35 & 1.35 \\ \hline Unit demand & & 900,000 & 910,000 & 925,000 & 975,000 \\ \hline Unit sales price (in USD) & & $10.95 & $10.95 & $11.50 & $11.10 \\ \hline Variable costs per unit (in EUR) & & 4.00 & 4.02 & 4.04 & 4.06 \\ \hline Fixed operating expenses (in EUR) & & 650,000 & 660,000 & 670,000 & 680,000 \\ \hline \end{tabular}