Slinger Wayne, a U.S.based private equity firm, is trying to determine what it should pay for a tool manufacturing firm in Honduras named Carambola. Slinger Wayne estimates that Carambola will generate a free cash flow of 26 million Honduran lempiras (Lp) next year (2022), and that this free cash flow will continue to grow at a constant rate of 7.5% per annum indefinitely A private equity firm like Slinger Wayne, however, is not interested in owning a company for long, and plans to sell Carambola at the end of three years for approximately 5 times Carambolas free cash flow in that year. The current spot exchange rate is Lp24.13/$, but the Honduran inflation rate is expected to remain at a relatively high rate of 18.0% per annum compared to the U.S. dollar inflation rate of only 1.5% per annum. Slinger Wayne expects to earn at least a 16% annual rate of return on international investments like Carambola.

a. What is Carambola worth if the Honduran lempira were to remain fixed over the three-year investment period? b. What is Carambola worth if the Honduran lempira were to change in value over time according to purchasing power parity?