The Wheel Deal Inc., a company that produces scooters and other wheeled non-motorized recreational equipment is considering an expansion of their product line to Europe. The following contains the details of this investment.

The expansion would require a purchase of equipment with a price of 1,200,000 and additional installation of 300,000 (assume that the installation costs cannot be expensed, but rather, must be depreciated over the life of the asset).

Because this would be a new product, they will not be replacing existing equipment. The new product line is expected to add 600,000 per year to firms revenue over the current level for the next 5 years. The firms expenses will also increase by 200,000 per year.

The equipment is multipurpose and the firm anticipates that they will sell it at the end of five years for 500,000.

The firms required rate of return is 12% and they are in the 40% tax bracket.

Depreciation is straight-line to a book value of 0 over the 5-year life of the equipment.

The investment also requires an increase in NWC of 100,000 (to be recovered at the sale of the equipment at the end of five years).

The current spot rate is $0.95/, and it is expected increase by3 percent per year over the five-year period.

a)Is the project acceptable under decentralized analysis, i.e., when analyzing the cash flows in euros?

b)Is the project acceptable under centralized analysis, i.e., when analyzing the cash flows in dollars?