An Australian corporation is considering a project Thailand. The project requires an initial investment of THB 300 million and generates the following expected THB after-tax cash flows: Year 1 2 3 After-tax cash flows 150 million 100 million 50 million The project has the following other features: The Australian corporation has an unlevered AUD cost of capital of 11% and a pre-tax cost of debt of 6%. The expected terminal value of the project's initial investment is zero. Inflation rates in Thailand and Australia are 2.5% and 3% respectively over the life of the project. The current spot exchange rate is S(THB/AUD) = 24.30. The marginal tax rate is 35% in both countries. For tax purposes, the corporation is allowed to use straight-line depreciation where the project's initial investment is depreciated to zero by an equal amount over each year of the project's three year life. There is no leverage, release of restricted funds or concessionary loans associated with the project. B4 (a) (9 marks) Using PPP to forecast the exchange rates and discounting cash flows at the relevant AUD discount rates, calculate the adjusted present value of this project in AUD. Show your working. B4 (b) (3 marks) Suppose instead that you assumed that the real cost of capital was the same for the company in THB or in AUD. Would your answer to (a) differ? Explain your reasoning. B4 (c) (3 marks) Suppose instead that the company uses the random walk model to forecast spot exchange rates in years 1, 2 and 3, while holding all other variables constant. Would this be good or bad for the AUD project value from part (a)? Explain your reasoning but note that you do not necessarily need to perform new calculations for this sub-question. An Australian corporation is considering a project Thailand. The project requires an initial investment of THB 300 million and generates the following expected THB after-tax cash flows: Year 1 2 3 After-tax cash flows 150 million 100 million 50 million The project has the following other features: The Australian corporation has an unlevered AUD cost of capital of 11% and a pre-tax cost of debt of 6%. The expected terminal value of the project's initial investment is zero. Inflation rates in Thailand and Australia are 2.5% and 3% respectively over the life of the project. The current spot exchange rate is S(THB/AUD) = 24.30. The marginal tax rate is 35% in both countries. For tax purposes, the corporation is allowed to use straight-line depreciation where the project's initial investment is depreciated to zero by an equal amount over each year of the project's three year life. There is no leverage, release of restricted funds or concessionary loans associated with the project. B4 (a) (9 marks) Using PPP to forecast the exchange rates and discounting cash flows at the relevant AUD discount rates, calculate the adjusted present value of this project in AUD. Show your working. B4 (b) (3 marks) Suppose instead that you assumed that the real cost of capital was the same for the company in THB or in AUD. Would your answer to (a) differ? Explain your reasoning. B4 (c) (3 marks) Suppose instead that the company uses the random walk model to forecast spot exchange rates in years 1, 2 and 3, while holding all other variables constant. Would this be good or bad for the AUD project value from part (a)? Explain your reasoning but note that you do not necessarily need to perform new calculations for this sub