PART B: 1. Aviva (USA) is considering opening a factory in Hungary. The following data are given. a) The initial investment is 2.5 billion Forint. (Ans, =$1.163m ) What if F/S=300 ? b) Current exchange rate (F/S)=2150. The spot rate is expected to move according to relative PPP between the U.S. and Hungary. U.S, and Hungarian inflation rates are expected to average 5 and 15 percent per year respectively over the investment period. c) Remittable operating cash flows in local currency are estimated to be as follows: The applicable discount rate is 17% (Ans, =$515,053 ) d) Lost sales from existing operation will cost Aviva an average of $50,000 per year. The applicable discount rate is 17% (Ans, - \$159,967) e) The project will generate a net-of-tax depreciation allowance of $120.000 per year for five years (Appropriate discount rate is 12% ) (Ans, =$432,573 ) f) Extra tax benefits of $15,000 per year can be generated with an applicable discount rate of 15%. ( Ans. =$50,282) g) At the end of the five-year project life the nominal salvage value (in local currency) is expected to be 20% of the original cost in local currency (appropriate discount rate is 18% ). (Ans. =$64,502 )