this is a better picture of the question sorry for the first picture

15, FOI Valuatien 3 pc is considering the following cash flows for country K that sequires an initial invest of ES tiinge arthin CO00 Year 2 1200 tear 1 Year 3000 800 al Calculate the NPV using the companies weighed eaf opl of 12 per cent-i the project worth undertaking? b A director points out that as the invetmentincountry t appropriate discount sate would be 25 reconsider your answer A second director argues thar the risk i granted to mine are eath raanot gat los of about E300 c00 Reconsider your an cent o part (a fact about dA thind dieector points eut tht sheud almost certainly in for Oher depsots are thought to be prest e identity the real otonand ee theo cence and is ely to collebo Reconide ANSWER Heading 11 31 15. FDI Valuation XH plc is considering the following cash flows for project Y (mining rare earth) in country K that requires an initial investment of 2.5m 000 Year 1 Year 2 Year 3 Year 4 800 1200 1000 1000 a) Calculate the NPV using the companies weighted average cost of capital of 12 per cent- is the project worth undertaking? b) A director points out that as the investment is in a country that is relatively unstable, a more appropriate discount rate would be 25 per cent. Recalculate the NPV at 25 per cent and reconsider your answer to part (a). c) A second director argues that the risk is in fact about whether or not a licence will be granted to mine rare earth. If it is not granted then XH plc can withdraw immediately with a loss of about 300 000. Reconsider your answer to the first two parts of this question. d) A third director points out that should XH not go ahead, a local mining company CC will almost certainly put in for a licence and is likely to collaborate with a rival US company. Other depsoits are thought to be present. Reconsider your previous answers. e) Identify the real option and game theoretic (competitive) elements of this question. Advanced Questions