ed will be the equity cost of capital.
PV = -700 + 400/(1.094) + 600/(1.0942)
= 167 million zlotky, or $58.45 million
Incidentally, since the net present value is positive, and by a significant amount, the project should probably be undertaken.
Income tax avoidance, as well as repatriation costs, are the major reasons to finance subsidiaries with debt. Also, it assures a steady stream of income from the subsidiaries, which might be politically easier to sell to the foreign country.
Debt interest is generally a tax deductible expense for the payer and taxable income for the payee. So if the income taxes are higher for the subsidiary, it is best to finance with debt so that the parent company can pay tax
...