Question: Zeda, Inc., a U.S. MNC, is considering making a fixed direct investment in Britain. The British government has offered Zeda a three-year loan guarantee of

Zeda, Inc., a U.S. MNC, is considering making a fixed direct investment in Britain. The British government has offered Zeda a three-year loan guarantee of 9,000,000 at a rate of 3% per annum. The normal borrowing rate is 6% in pounds. Interest payments will be made annually, and principal will be repaid at the end of the three years.

Assume the current spot exchange rate is $1.50/, and Zedas WACC (in ) is 10%. What is the net present value of the benefit of the loan guarantee?

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