The conflict in Ukraine has had a significant impact on international investments, particularly increasing the risk associated with investments in crops like cereals and agricultural raw materials. However, some companies in other regions have benefitted from the conflict by producing for buyers of Ukrainian exports. One of these companies is Koko, a Philippines-based company that has gained a share of the European flour market. The company is considering investing $1,500,000 in new facilities to consolidate their business in the European markets. The project will provide a net cash flow of $125,000 for the company next year, and the cash flows are projected to grow at a rate of 2% per year forever. a. If the company requires a rate of return of 12%, should they invest in expanding their capacities? Estimate and justify your decision. (20 marks) b. A new conflict near the Philippines emerges on the international scene. This conflict would partially disrupt Philippine economic activities, leading to a revision of the growth rate projection for Koko from 2% to 0.02%. Can we afford the investment? What would be the minimum growth rate that we can afford to invest in the new project? Elaborate your answer.

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a Investment Decision for Koko 1 Project Valuation To determine if the investment is worthwhile we need to compare the present value of the expected c... View the full answer