1. Today, the spot rate of the euro is $1.40, while the one-year forward rate of the euro is $1.34. If Louisville accepts the project, it would hedge the receivables resulting from sales to the large corporate customer, and none of the expected receivables due to expected sales to other minor customers.

1. Do you think the Louisville's exposure to exchange rate risk due to the project if it uses the alternative financing (explained in part b) is higher, lower, or the same as if it has an initial cash outlay of $6 million (and does not borrow any funds)? Briefly explain.
2. Estimate the net present value (NPV) of the project.
3. Assume that Louisville considers alternative financing for the project, in which it would use $4 million cash, and the remaining initial outlay would come from borrowing euros. In this case, it would need 1,500,000 euros to repay the loan (principal plus interest) at the end of one year. Assume no tax effects due to this alternative financing. Estimate the NPV of the project under these conditions.