9. Offshoring (B-advanced). Referring to information provided in Problem 8, Cardiex’s sales in the European Union are projected to remain stable at €100 million for the next 5 years. Show pro-form income and cash-flow statements for Cardiex manufacturing in the proposed offshore plant in the Philippines.

Depreciation of property, plant, and equipment for the new facilities is straightlined over 10 years for an initial investment of €35 million. Selling, general, and administrative expenses are 8 percent of final sales while working capital is at 10 percent of final sales. The Philippines’ Ministry of Industry offers a tax holiday on the first five years of corporate income, and a subsidized PHP 2,000 million 5-year loan with interest-only at 7 percent. Cardiex is expecting to sell its plant at the end of five years for €17.5 million. Assuming that Cardiex would incur closure costs of €5 million at its Maastricht plant, would you advise Cardiex to move assembly to the new Philippines site? Assume that Cardiex’s risk adjusted cost of equity capital for this project is 11.8 percent and that the exchange rate PHP 50 = €1 remains stable over the next five years.