Illustration: ABC Ltd is a Kenyan MNC with a subsidiary in Tanzania. The Tanzanian subsidiary has an opportunity to invest in a project costing Tsh 500m with the parent company contributing Tsh 300m. The subsidiary will use Tsh 100m from its retained earnings and will borrow Tsh 100m at 10% locally. The subsidiary will have to import some inputs from the parents company resulting Tsh 50m p.a. to the parent company. The project will resort in operating savings before depreciation and taxes Tsh 200m p.a. in real terms and will have a salvage value at the end of 5 years of Tsh 50 m. If the project is undertaken, the parent company would suffer from diseconomies of scale amounting to Tsh 10m p.a. The appropriate nominal discount rate in Tanzania is 30%. The company uses straight-line depreciation method and the following exchange rate is expected: Tsh 10/Ksh 1 Spot rate End of 1st year Tsh 12/Ksh 1 End of 2nd year Tsh 12.5/Ksh 1 End of 3rd year Tsh 12.5/Ksh 1 End of 4th year Tsh 13/Ksh 1 End of 5th year Tsh 15/Ksh 1 The inflation rate in Tanzania is expected to be 6% during the project life. Assume that the net operating cash flows from the project are paid as dividends to the parent company at the end of each year. Required: Advice the company on whether to undertake the investment (use the parent perspective)