Question $4$

Barakah Equipment Berhad has an investment opportunity in Greece. The project cost $15$

million and below are the expected cash inflows from year $1$ to year $5$:

The current spot exchange rate is $1\mathrm{.}28$ per USD$1.$ The current risk$-$free rate in the United

States $($U$.$S$.)$ is $5\mathrm{.}2\%$ compared to Greece of $3\mathrm{.}8\%.$ The appropriate discount rate for the

project is estimated to be $12\%,$ the U$.$S$.$ cost of capital for the company. Assume that

uncovered interest parity exists.

From the above information, you are required to answer the following questions.

a$.$ Determine the Net Present Value for the project in U$.$S$.$ dollar using home currency

approach.

$(8$ Marks$)$

b$.$ Based on your answer in part $($a$),$ should Barakah Equipment Berhad proceed with the

project? Explain.