Can you help me do this project. The instruction is on the file below.

MSDI-Alcala de-Henares, Spain - Questions with Notes In responding to this case-study please answer the following questions: 1. Compute the net present value of the photoelectric inspection equipment in: a) pesetas, by discounting peseta cash flows at a peseta discount rate; and b) dollars, by translating future cash flows into dollars at expected future spot exchange rates. Merck's dollar hurdle rate for a project of this type was 13%. Assume that at the time of the analysis, annual inflation was expected to be 8% in Spain and 4% in the United States. 2. How and why do these two net present values differ? Which analytic approach should Merck use to evaluate this project? Why? 3. How sensitive is the NPV of the new equipment to changes in the peseta / dollar exchange rate? What happens to the NPV if Spanish inflation is assumed to be less than 8% per year (assume that expected dollar inflation remains at 4% per year)? 4. Should Merck headquarters approve the equipment purchase? Please include in your analysis and / or presentations any aspect of the case-study that relates to financial decision making and effective solution/s for issues raised in the case study. In other words, please take the initiative to go beyond the above questions if necessary. Notes: a. There is lot of interest rate data available within the case-study. Your team may want to see if any of the interest rates provided offer a good estimate for the peseta discount rate. Alternately, using the parity conditions most relevant, assume both purchasing power parity (PPP) and interest rate parity (IRP) hold. Does this help your team estimate the discount rate? Be meticulous in using basic cash flow analysis to arrive at peseta cash flows. b. To forecast future spot exchange rates, using purchasing power parity (PPP) may offer a similar channel for converting peseta cash flows into dollar cash flows so the dollar discount rate could be employed for arriving at the NPV of the project in US dollars. c. In developing the peseta cash flows include cost savings, impact of depreciation, after-tax salvage values so that all cash flows incremental to the project get systematically included. d. Justify use of parity conditions in arriving at NPV, using two different methods, and the need for any sensitivity analysis. e. If there are good reasons for preferring one method over another for calculating NPV, please elaborate. f. In deciding whether MSDI should purchase the equipment are there any other considerations? MSDI-Alcala de Henares Harvard Business School Case #289-029 Case Software #XLS067 Copyright 2010 President and Fellows of Harvard College. No part of this product may be reproduced, stored in a retrieval system or transmitted in any form or by any meanselectronic, mechanical, photocopying, recording or otherwisewithout the permission of Harvard Business School. Exhibit 1 Merck & Co., Inc.Selected Consolidated Financial Data a (millions of US$ except as noted) 1986 Sales 1985 1984 1983 Years Ending December 31, 1982 1981 1980 1979 1978 1977 ### $3,547.5 $3,559.7 ### ### ### ### ### ### ### Net income 675.7 539.9 493.0 450.9 415.1 398.3 415.4 381.8 307.5 277.5 Total assets 5,105.2 4,902.2 4,590.6 4,214.7 3,655.4 3,317.2 2,907.7 2,649.1 2,278.1 1,993.4 167.5 170.8 179.1 385.5 337.3 241.0 211.4 213.7 211.4 213.8 2,541.2 2,607.7 2,518.6 2,409.9 2,180.2 1,978.2 1,841.6 1,645.0 1,436.3 1,260.2 Earnings/share ($) 4.85 3.79 3.36 3.05 2.81 2.68 2.77 2.53 2.03 1.84 Dividend/share ($) 1.90 1.60 1.50 1.40 1.40 1.30 1.15 0.95 0.85 0.75 Return on sales (%) 16.4 15.2 13.8 13.9 13.6 13.6 15.2 16.0 15.5 16.1 Return on beginning equity (%) 25.9 21.4 20.5 20.7 21.0 21.6 25.3 26.6 24.4 25.2 Capital expenditures 210.6 237.6 274.4 272.8 295.1 322.8 256.5 170.1 155.9 177.2 Depreciation 167.2 163.6 151.6 135.2 121.1 105.0 91.3 80.6 74.3 65.8 R&D expenditures 479.8 426.3 393.1 356.0 320.2 274.2 233.9 188.1 161.4 144.9 Long-term debt Equity a As reported in the Merck & Co., Inc. 1987 Annual Report. Exhibit 2 Comparison of Projected Operating Data for Different Inspection Processes (thousands of pesetas, unless noted) 1988 Projected ampule volume (000) 1989 1990 Years Ending December 31, 1991 1992 1993 1994 1995 1996 1997 4,590 4,258 4,166 4,020 3,854 3,702 3,566 3,443 3,335 3,240 14,872 29,376 44,248 88,496 14,900 29,431 44,331 88,662 15,744 31,099 46,843 93,686 16,407 32,410 48,817 97,634 16,988 33,557 50,546 ### 17,624 34,812 52,436 ### 18,334 36,216 54,551 ### 19,118 37,764 56,883 ### 20,000 39,506 59,506 ### 20,985 41,451 62,436 ### 13,678 11,750 44,248 69,676 13,704 11,773 44,331 69,808 14,480 12,440 46,843 73,763 15,091 12,964 48,817 76,872 15,625 13,423 50,546 79,594 16,210 13,925 52,436 82,571 16,863 14,487 54,551 85,901 17,584 15,106 56,883 89,573 18,395 15,803 59,506 93,704 19,301 16,581 62,436 98,318 Projected Operating Costs, Semiautomatic Equipmenta Materials Direct labor Overheadb Total Projected Operating Costs, New Photoelectric Equipmenta Materials Direct labor Overheadb Total a b Projections reflect 8% annual inflation in per-ampule costs. Does not include depreciation. Exhibit 3 Selected Spanish Financial and Macroeconomic Data Short-Term Commercial Lending Rate (Pts %) Consumer Prices Inflation (Pts %) Date Average Daily Interbank Rate (Pts %) 6-12 Month Deposit Rate (Pts %) 1980 1981 1982 1983 18.6 18.7 20.3 16.4 13.1 11.4 12.3 12.3 16.9 15.3 15.0 15.0 10.2 11.5 14.7 12.2 1.5 0.2 1.2 1.8 1984 I II III IV 14.8 11.9 12.5 12.2 12.5 12.6 12.4 11.7 20.0 17.2 15.0 14.0 11.3 1.9 1985 I II III IV 12.1 14.0 11.1 9.9 11.1 10.7 10.5 9.9 13.7 14.0 14.3 12.0 8.8 2.2 1986 I II III IV 11.3 12.0 11.6 11.8 9.4 9.2 8.9 8.7 11.6 12.4 12.5 12.3 8.8 3.3 1987 I II 14.4 18.1 8.6 8.8 13.1 17.9 Real Growth in GDP (%) Exhibit 4 Selected U.S. Financial and Macroeconomic Data Date Average Yield on 3-Month T-Bills (US$ %) Average Yield on 10-Year T-Bonds (US$ %) Average Yield on 6-Month Commercial paper (US$ %) Prime Commercial Lending Rate (US$ %) 1980 1981 1982 1983 11.50 14.03 10.69 8.63 11.46 13.91 13.00 11.10 12.29 14.76 11.89 8.89 15.27 18.87 14.86 10.79 13.5 10.4 6.1 3.2 -0.2 1.9 -2.5 3.6 1984 I II III IV 9.13 9.84 10.34 8.97 11.94 13.20 12.87 11.74 9.45 10.77 11.15 9.26 11.25 12.75 12.75 11.00 4.3 6.8 1985 I II III IV 8.18 7.52 7.10 7.15 11.58 10.81 10.34 8.76 8.69 7.91 7.72 7.70 10.50 9.75 9.50 9.50 3.6 3.0 1986 I II III IV 6.89 6.13 5.53 5.34 8.56 7.60 7.31 7.26 7.41 6.54 5.89 5.73 9.25 8.50 7.50 7.50 1.9 2.9 1987 I II 5.53 5.73 7.19 8.34 5.95 6.85 7.50 8.50 Consumer Price Inflation (US$ %) Real Growth in GDP (%)