Assume that management is considering whether to make the foreign direct investment described in Exercise 3. Investment will require $6,000,000 in equity capital. Cash flows to the parent are expected to increase by 5 percent over the previous year for each year after year 2 (through year 6). Exchange rate forecasts are as follows:
Year Rate
1 RUB .......... 26 = $1
2 RUB .......... 27 = $1
3 RUB .......... 29 = $1
4–6 RUB ......... 31 = $1
Management insists on a risk premium of 10 percent when evaluating foreign projects.

Required:
Assuming a weighted average cost of capital of 10 percent and no expected changes in differential tax rates, evaluate the desirability of the Russian investment using a traditional discounted cash flow analysis.