The next 3 questions are based on the following information. You work for a firm whose home currency is the Swedish krona (SEK) and that is considering a foreign investment. The investment yields expected after-tax Danish krone (DKK) cash flows (in millions) as follows: Year 2 Year 0 Year 1 -DKK486 DKK205 DKK205 Year 3 DKK205 The expected rates of inflation in each country are constant per year: 6.2% in Sweden, and 3.8% in Denmark. From the project's perspective the required return is 17.68%, while from the parent's perspective, the required rate of return is 9.10%. The spot exchange rate is SEK123.57/DKK. Assume that covered interest rate parity holds and that firms' management believes that relative purchasing power parity is the best way to predict future exchange rates over this investment time horizon. What is the NPV of the project from the project's perspective? O a. -SEK4,693.10 million O b. SEK3,953.25 million O c. SEK10,510.87 million Focus Mode

What is the NPV of the project from the parent company's perspective? a. SEK6,870.25 million b. SEK2,236,42 million c. SEK1,184.63 million d. SEK2,408.77 million e. SEK3,292.68 million What is the correct course of action for the managers of the firm? a. Reject the project but keep looking for positive-NPV projects in the Danish krone due to favourable exchange rate forecasts in its real value against the Swedish krona. b. Reject the project. It is both a bad project and there are unfavourable exchange rate foreacasts. c. Accept the project only if it is possible to hedge or otherwise structure the deal to lock in the positive Danish krone project value in the parent company's domestic Swedish krona terms. d. Accept the project and then, depending on the corporation's tolerance for risk, potentially leave the investment unhedged to take advantage of the expected real appreciation of the project's local currency (the Danish krone) against the parant company's home currency (the Swedish krona). e. Accept the project and then hedge or otherwise capture the project's value if possible