Burberry recently decided to invest more than $400 million for expansion in Peru. Peru offers considerable potential because it has 200 million people and their demand for branded clothing is increasing. however, the demand for branded clothing is still only about one-fifth of the clothing demand in the UK. Blueberry initial outlay was used to purchase three production plants and a distribution network of almost 1000 trucks to distribute its products to its store in Peru. the expansion was expected to make Blueberry products more accessible to Peru Customer.

1. Given that Blurberry's Investment in Peru was entirely in pounds describe its exposure to exchange rate risk resulting from the project. Explain how the size of the parent's initial investment and the exchange rate risk would have been affected if Blueberry had financed much of the investment with loans from banks in Peru.

2. Describe the factors that Blurberry likely considered when estimating the future cash flow of the project in Peru.

3. What factors did Blurberry likely consider in deriving its required rate of return on the project in Pero?

4. Describe the uncertainly that surrounds the estimate of future cash flow from the perspective of the U.S parent?