Barta PLC is evaluating an investment in Sweden
Barta PLC is evaluating an investment in Sweden. This will involve building manufacturing capacity at a cost of 30 mln Swedish Krona. This will have a 3-year project life. Cash flows are expected to be 15 mil Swedish Krona annually.
The current spot exchange rate is 11.90 SK per £1. Inflation in UK is 2% and it is 5% in Sweden.
Barta PLC requires 10% rate of return on similar investment in UK £.
1) Calculate NPV of the investment opportunity using UK£ (15 marks)
2) Advise if Barta PLC should undertake this investment. Comment on other matters that should be considered.
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