Carson Co., a U.K. based telco multinational corporation is considering a 4-year project of a new satellite system in Hong Kong under the Transnational Asian Tele-communication Development Program that will boost the performance of internet and connectivity throughout Asia. The satellite system is expected to cost HK$25 million. The new satellite system is expected to provide incremental cashflows of HK$17.25 million per year. The spot exchange rate is HK$0.95 per across the life of the project. The projects cost of capital which includes a foreign exchange risk premium is 10 percent (%).

a) Calculate the projects British pound denominated net present value (NPV).

b) If Hong Kong dollar is expected to strengthen annually by 0.2 percent. Calculate the revised NPV if the cost of capital is revised to 11%.

c) Based on part (a), Carson Co is considering revising its current cost of capital to include the increase in risk premium due to political unrest in Hong Kong. The revised cost of capital is 18 percent. Calculate Carsons new NPV with the new cost of capital.