Carpet Baggers, Incorporated, is proposing to construct a new bagging plant in a country in Europe....

Transcribed Image Text:

Carpet Baggers, Incorporated, is proposing to construct a new bagging plant in a country in Europe. The two prime candidates are Germany and Switzerland. The forecasted cash flows from the proposed plants are as follows: Candidates Germany (millions of euros) Switzerland (millions of Swiss francs) Co C C2 C3 C C5 C6 IRR(%) -70 +20 +25 +25 +30 +30 +30 27.7 -104 +30 +40 +40 +45 +45 +45 29.2 The spot exchange rate for euros is EUR/USD = 1.40, while the rate for Swiss francs is USD/CHF = 1.60. The interest rate is 7% in the United States, 6% in Switzerland, and 8% in the euro countries. The financial manager has suggested that, if the cash flows were stated in dollars, a return in excess of 12% would be acceptable. a. Calculate the NPV in dollars for the German plant. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. b. Calculate the NPV in dollars for the Swiss plant. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. c. Should the company go ahead with either project? d. If it must choose between them, which should it take? a. Net present value b. Net present value c. Should the company go ahead with either project? d. If it must choose between them, which should it take? million million Carpet Baggers, Incorporated, is proposing to construct a new bagging plant in a country in Europe. The two prime candidates are Germany and Switzerland. The forecasted cash flows from the proposed plants are as follows: Candidates Germany (millions of euros) Switzerland (millions of Swiss francs) Co C C2 C3 C C5 C6 IRR(%) -70 +20 +25 +25 +30 +30 +30 27.7 -104 +30 +40 +40 +45 +45 +45 29.2 The spot exchange rate for euros is EUR/USD = 1.40, while the rate for Swiss francs is USD/CHF = 1.60. The interest rate is 7% in the United States, 6% in Switzerland, and 8% in the euro countries. The financial manager has suggested that, if the cash flows were stated in dollars, a return in excess of 12% would be acceptable. a. Calculate the NPV in dollars for the German plant. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. b. Calculate the NPV in dollars for the Swiss plant. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. c. Should the company go ahead with either project? d. If it must choose between them, which should it take? a. Net present value b. Net present value c. Should the company go ahead with either project? d. If it must choose between them, which should it take? million million