You are planning to open a 100% owned subsidiary in France. The following cash flows are projected for the next five years. The spot rate for the Euro is $1.10/. The dollar is expected to appreciate 2% per year for the next five years.

Sales 10,000,000 Variable Costs 4,000,000 Administrative Cost 1,000,000 Royalties 2,000,000 Earnings before taxes 3,000,000 Taxes 600,000 Earnings after taxes 2,400,000

Withholding Tax 8.00% Overseas Corporate Tax 20.00% US Tax 35.00% Investment $10,000,000.00 Dividend rate 50.00% Required return 16.00%

You expect to make dividend payments of 50% every year to the parent. Dividends repatriated to the U.S are subject to 8% withholding tax. Royalties sent back to the parent should be considered as cash flows from the parent's perspective. If the total investment from the parent company is $10,000,000 in year 0, is the project acceptable from the parent's point of view? Assume the required rate of return on this project is 16%. The U.S. tax rate is 35%. Show all work for full credit.