Etemadi Amalgamated, a U.S. manufacturing firm, is considering a new project in the euro area. You are in Etemadi's corporate finance department and are responsible for deciding whether to undertake the project. The free cash flows, in euros, are forecast to be the following:

Year	Free Cash Flow (euro million)
0	negative 1515
1	99
2	1010
3	1111
4	1212

You know that the spot exchange rate is

Upper S equals $ 1.1500 divided by euroS=$1.1500/.

In addition, the risk-free interest rate on dollars is

4.0 %4.0%,

and the risk-free interest rate on euros is

6.0 %6.0%

(and the yield curve is flat in both currencies).

Assume that these markets are internationally integrated and the uncertainty in the FCFs is not correlated with uncertainty in the exchange rate. You determine that the dollar WACC for these cash flows is

8.5 %8.5%.

a. What is the dollar present value of the project? Should Etemadi Amalgamated undertake the project?

b. Assume that the spot rate is now

Upper S equals $ 0.8500 divided by euroS=$0.8500/,

about

26 %26%

lower. What is the new present value of the project in dollars? What is the new present value of the project in dollars? Should Etemadi Amalgamated undertake theproject?

Hint: Make sure to round all intermediate calculations to at least four decimal places.