Your US-based firm is considering investing in a project run by its Canadian subsidiary. This project will cost CAD 26M to set up today and will pay out CAD 29M in one year. This project will be all equity financed, with the parent firm taking a 70% equity stake, and the Canadian subsidiary will be taking a 30% equity stake. The spot rate is currently USD 0.77 per CAD, and you expect that it will be USD 0.84 per CAD in one year. Your USD discount rate for projects in First World foreign countries is 14%, and your Canadian subsidiarys discount rate for domestic projects is 13%

5C. You believe that the payout for this project could be CAD 1M higher or lower than expected, and that the exchange rate one year from today could be USD 0.12 per CAD higher or lower than expected. If you are concerned about reducing the chance of making a negative NPV investment for the parent firm, should you concentrate on eliminating exchange rate risk or boosting sales?