Assume that you invested equity to establish a project in Portugal in January of about 7 years ago. At the time the project began, you could have supported it with a 7- year loan either in dollars or in euros. If you bor- rowed U.S. dollars, your annual loan payment (includ- ing principal) would have been $2.5 million. If you borrowed euros, your annual loan payment (including principal) would have been 2 million euros. The project generated 5 million euros per year in revenue.

1. Use an Excel spreadsheet to determine the dollar net cash flows (after making the debt payment) that you would receive at the end of each of the last 7 years if you partially ?nanced the project by bor- rowing dollars.

2. Determine the standard deviation of the dollar net cash fows that you would receive at the end of each of the last 7 years if you partially ?nanced the project by borrowing dollars.

3. Reestimate the dollar net cash ?ows and the stan- dard deviation of the dollar net cash flows if you partially ?nanced the project by borrowing euros. (You can obtain the end-of-year exchange rate of the euro for the last 7 years at http://www.oanda. com or other websites.) Are the project's net cash ?ows more volatile if you had borrowed dollars or euros? Explain your results.