$11.$ A U$.$S$.$ multinational corporation is considering a new project in the UK$.$ The

project requires an initial investment or outlay of $1,005$ million. The project

is expected to have cash inflow of $805$ million in the first year of operation

and $816$ million in the second year of operation. The current exchange rate is

$$1\mathrm{.}2632/.$ The risk$-$free interest rate in the United States is $5$ percent and the risk$-$ free interest rate in the UK is $6$ percent. The president of the firm

estimates that the required rate of return on the market portfolio in the United

States is $12\mathrm{.}36$ percent, and that the required rate of return on the market

portfolio in the UK is $14\mathrm{.}18$ percent. The president also estimates that the

project beta is about $0\mathrm{.}80,$ valued against either the U$.$S$.$ or the UK market.

What is the present value of the project if evaluated using the decentralized

method of international capital budgeting?

$1016\mathrm{.}78/1+0\mathrm{.}10888=916\mathrm{.}891031\mathrm{.}57/(1+0\mathrm{.}10888)^2=838\mathrm{.}70$

$916\mathrm{.}89+838\mathrm{.}70=$$$1755\mathrm{.}59$million

$12.$ Consider the information provided in #$11$ above. What is the present value of

the project if evaluated using the centralized method of international capital

budgeting?