Shackleton Heights, a Canadian company, has no existing business in Brazil but is thinking of establishing a subsidiary there. The relevant information is below to evaluate this project: . Initial investment: 50 million Brazilian real (BRL). . The current spot rate is BRL 1-CAD 0.25 (1 Brazilian real-0.25 Canadian dollars). The subsidiary will be sold at the end of Year 3, which is when the project will be terminated. Sales price, consumer demand and variable cost of the product in Brazil are below. Year Sales Price per unit (in BRL) 1 500 Demand 70,000 units Variable Cost per unit (in BRL) 200 2 3 511 530 80,000 units 250 85,000 units 280 . Estimated fixed costs are BRL. 5 million per year. The exchange rate is expected to be BRL 1-CAD 0.26 at the end of Year 1, BRL 1- at the end of Year 2, and BRL 1-CAD 0.28 at the end of Year 3. CAD 0.27 30% tax on before-tax earnings will be imposed by the Brazilian government. In addition, there will be a withholding tax of 10% on funds remitted overseas by the subsidiary. The Brazilian subsidiary will remit 100% of net cash flows to the parent at the end of each year. Plant and equipment will be depreciated using the straight-line depreciation method, with an annual depreciation expense of BRL 5 million for each of the three years. Shackleton Heights intends to sell the subsidiary in three years. The salvage value is BRL 35 million. The required rate of return on this project is 16%. Required: 1) Calculate the net present value (NPV) of this project. 2) Should Shackleton Heights accept this project? Why or why not? 200 3) How would your answer change if the value of the Brazilian real was expected to remain unchanged at BRL 1 CAD 0.25 throughout the three years? In such a case, should Shackleton Heights accept this project? Why or why not?