Centralia, a US corporation manufacturing electrical appliances, is planning a FDI in Spain in order to gain broader access to the EU. The company is currently exporting 9600 units per year to Spain, which are expected to increase by 5% p.a., and which yield a contribution of $35. If the firm proceeds with the FDI, it expects to sell 25000 units in year 1, which are estimated to rise by 12% p.a. Units are expected to be priced in Euros and their contribution is expected to be 40 Euros/unit Inflation is estimated to be 2.1% in Spain, while in the US it is estimated at 3%. The current exchange rate is $1.32/1.00 Euro. Cost of construction is estimated at 5.5 million Euros and the borrowing capacity of the project is estimated at $2.904.000. It should also be noted that Centralia has accumulated 937.500 Euros (pre-tax), which it does not wish to repatriate and may use towards the financing of the project (these funds have been taxed at 20%). The depreciation period of the project is expected to be 8 years. An attractive feature of the FDI is that the government of Spain is willing to provide a concessionary loan of 4 million Euros at a rate of 5%. Centralia usually borrows at 8% in $ and 7% in Euros. The loan is to be repaid in eight equal installments. The $ all-equity cost of capital of Centralia is 12% and the tax rate in the US and Spain is 35%. 51