Question $1$

OneUSF, a U$.$S$.$ MNC based in Florida, is considering making a fixed direct investment in Italy. The Italian government has offered OneUSF a

concessionary loan of $2,700,000$ at a rate of $3$ percent per annum. The current spot rate is $$\frac{1\mathrm{.}31}{}1\mathrm{.}00$ and the expected inflation rate is

$2\mathrm{.}5\%$ in the U$.$S$.$ and $2\%$ in Italy. The normal borrowing rate is $6$ percent in dollars and $5\mathrm{.}5$ percent in euros. The loan schedule calls for the

principal to be repaid in three equal annual installments. The marginal corporate tax rate in Italy and the U$.$S$.$ is $35\%.$ What is the present

value of the benefit of the concessionary loan?

$$1,131,289$

$$143,174$

None of the above with the $$10,000$ of the correct answer

$$984,145$

$$111,756$