Explain the process to get to the answer:

6) You are asked to evaluate the following project for a French company investing Poland. The expected cash flows from the project in Polish zloty (z) are provided in the time line below. The Polish government is willing to provide the company with a non-amortizing loan of 70,000,000 z at a rate of 3 percent per annum over the next 5 years. If the company were to finance the project locally in Poland, their borrowing rate would be 14 percent per annum. The discount rate for similar projects in the Poland is 30% and the discount rate for similar projects in France is 25%. The current spot rate 4.5250 z/. The zloty is expected to appreciate by 9% per year for the next five years. Assume the effective tax rate in both the France and Poland is 42%. How much is the project value going to increase from the project perspective due to the government subsidized loan? Show all necessary calculations to support your answer.

(Cash flows in Polish zloty)

-70,000,000z 20,000,000z 30,000,000z 40,000,000z 60,000,000z 70,000,000z

0 1 2 3 4 5

Subsidized Financing for Non-Amortizing Loan
Currency d
Currency f	zl
Principal in Currency f	70,000,000	zl
Pre-Tax Market Rate of Debt	14.00%
Pre-Tax Subsidized Rate	3.00%
Maturity in Years	5
Spot Rate in d/f	0.22099		per	zl	4.525	zl	per
Corporate Tax Rate	42.00%
		T1	T2	T3	T4	T5	T6	T7
After-Tax Interest Expense Savings in Currency f		4,466,000	4,466,000	4,466,000	4,466,000	4,466,000	0	0
After-Tax Market Rate of Debt	8.12%
Project NPV in Currency f	17,775,189	zl
Project NPV in Currency d	3,928,219