Problem 31-3 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 expected free cash flows, in euros, are shown here: Free Cash Flow Year (EUR million) -15 9 10 10 12 4 12 13 You know that the spot exchange rate is S = USD 1.15/EUR. In addition, the risk-free interest rate on dollars is 4% and the risk-free interest rate on euros is 690 Assume that these markets are internationally integrated and the uncertainty in the free cash flows is not correlated with uncertainty in the exchange rate. You determine that the dollar WACC for these cash flows is 8.5%. what is the dollar present value of the project? Should Etemadi Amalgamated undertake the project? 14 15 16 17 18 19 20 Spot rate (USD/EUR) Risk-free rate on USD Risk-free rate on EUR WACC 1.15 4.00% 6.00% 8.50% 31-3