A Japanese MNC is considering a foreign project $($Project X$)$ in Korea, which has an NPV of KRW $3$ billion. However, to take Project X$,$ the Korean government requires it to take Project Y as well $($a tie$-$in project$).$ The required return for Project X is $25\%$ and the required return for Project Y is $5\%.$ The cash flow of Project Y is as follows:

Year $012$

FCF $-103\mathrm{.}1256\mathrm{.}25$

Assume that the two projects' cashflows are independent to each other $($do not mutually affect the operation$).$ What is the combined NPV of the project $($Project X $+$ Project Y$),$ and should the Japanese MNC accept or reject this project?

Question $7$Answer

a$.$

The combined NPV of the project is KRW $1\mathrm{.}65$ billion, and thus the Japanese MNC should accept this combined project.

b$.$

We cannot estimate the combined NPV since the cash flow of Project X is unknown.

c$.$

The combined NPV of the project is KRW $-0\mathrm{.}5$ billion, and thus the Japanese MNC should reject this combined project.

d$.$

The combined NPV of the project is KRW $0\mathrm{.}5$ billion, and thus the Japanese MNC should accept this combined project.