Question 5 GP Industries Ltd. is a Singaporean company that develops, manufactures, markets, and retails electronic and acoustic products. It is considering a project in Thailand that has an initial cash outlay of 8 million Singapore dollars (SGD). GP will accept the project only if it can satisfy its required rate of return of 18 percent. The project would definitely generate 90 million Thai baht (THB) in one year from sales to a large corporate customer in Thailand. In addition, GP also expects to receive 145 million THB in one year from sales to other customers in Thailand. If GP accepts the project, it would hedge all the receivables resulting from sales to the large corporate customer, and none of the expected receivables due to expected sales to other customers. Today, the spot rate of the THB, interest rate for SGD and THB, and expected inflation in Singapore and Thailand are as follow: Spot rate of THB 0.040 SGD 1-year interest rate for SGD 5.0% 1-year interest rate for THB 2.5% Expected annual inflation in Singapore 2.0% Expected annual inflation in Thailand 4.5% Assume that interest rate parity and purchasing power parity hold. (a) Estimate the SGD net present value (NPV) of the project, accurate to the nearest cent. Should GP invest in Thailand? (b) (c) (10 marks) Assume that GP considers alternative financing for the project, in which it would use 5 million SGD cash, and the remaining initial outlay would come from borrowing THB. Determine the amount GP would need to repay the THB loan (principal plus interest) at the end of one year. Estimate the SGD NPV of the project, accurate to the nearest cent, under these conditions. Assume no tax effects due to this alternative financing. (10 marks) Do you think the GP's exposure to exchange rate risk due to the project if it uses the alternative financing (explained in part b) is higher, lower, or the same as if it has an initial cash outlay of 8 million SGD (and does not borrow any funds)? Explain. (4 marks) (TOTAL: 24 marks)