Assume that Merlin Corp. is considering the establishment of a subsidiary in Norway. The initial investment required by the parent is $10 million. If the project is undertaken, Merlin would terminate the project after four years. Merlin's cost of capital is 13 percent, and the project has the same risk as Merlin's existing projects. All cash flows generated from the project will be remitted to the parent at the end of each year. Listed below are the estimated cash flows the Norwegian subsidiary will generate over the project's lifetime in Norwegian kroner (NOK):

Year 1 NOK10,000,000

Year 2 NOK15,000,000

Year 3 NOK17,000,000

Year 4 NOK20,000,000

The current exchange rate of the Norwegian kroner is $.115. Merlin's exchange rate forecasts for the Norwegian kroner over the project's lifetime are listed below:

Year 1 $0.12

Year 2 $0.13

Year 3 $0.14

Year 4 $0.15

1.Calculate the net present value of the Norwegian project?

2.Should Carlson adopt the project?Explain.