20. Investment decisions (S28.4) Carpet Baggers Inc. 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:

C0 C1 C2 C3 C4 C5 C6 IRR (%)

Germany

(millions of euros) −60 +10 +15 +15 +20 +20 +20 15.0 Switzerland

(millions of Swiss francs) −120 +20 +30 +30 +35 +35 +35 12.8 The spot exchange rate for euros is EUR/USD = 1.3, while the rate for Swiss francs is USD/CHF = 1.5. The interest rate is 5% in the United States, 4% in Switzerland, and 6% in the euro countries. The financial manager has suggested that, if the cash flows were stated in dollars, a return in excess of 10% would be acceptable.

Should the company go ahead with either project? If it must choose between them, which should it take?

Chapter 28 International Financial Management 825