Question 5 - 25 marks A US based MNC, Genuflow Ltd. is considering establishing a three-year project in Canada with a US $70 million initial investment. The firm's cost of capital is 10%. The required rate of return on this project is 13%. The firm is projected to generate cash flows of C$38 million in Years 1 and 2, and C$58 million in Year 3 , and is expected to have a salvage value of C$30 million. MNC must pay a 10% tax on remitted funds, and the stable exchange rate is C$1.27 per US\$(i.e. US\$1=\$C1.27) over the next two years and a rate of C$1.31 per US\$ (i.e US\$=C\$1.31) in year 3. All cash flows are remitted to the parent at the end of each year. Required: i) What is the amount of US dollars that will be remitted to the parent company each year? Hint: use the after tax cash flows. ii) Calculate the Net Present Value of the project. (Hint - find NPV of the after tax cash flows) (18 marks) iii) Explain whether or not the MNC should accept the project? (3 marks) iv). Genuflow Ltd. conducted its capital budgeting analysis in July. However, in December the management expects the leadership of the government to stabilize and improvements in the political conditions in Canada. How should the discount rate and the feasibility of the project be affected by the improvements in the country's political conditions? (4 marks)