You graduated with your Masters three years ago and are now employed as a manager at a well-known UK company. The main Board of the company is considering setting up a subsidiary company in continental Europe. The exact location has not yet been decided but the overwhelming likelihood is that it will be within an EU country. The Board propose to operate a pilot project as follows: The project would require an initial investment of 10m (in year 0). The expected revenues are 3m at the end of year 1 5m at the end of year 2 and 10m at the end of both years 3 and 4. Take the sterling/euro direct exchange rate as 1.05. The companys money cost of capital is estimated as 8% p.a. For the foreseeable future the rate of inflation in the UK is estimated to be 3% p.a. and in the euro economies as 1% p.a.