Barta PLC is evaluating an investment in Sweden

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 £.

Required:
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.