Carloco Carpets Co. Carloco Carpets Co., Germany, manufactures high-grade dyes for textiles. Until now, manufacturing was being subcontracted to other companies, but for quality control reasons Carloco has decided to manufacture its own products in the Middle East. Analysis has narrowed the choice to two possibilities, Cairo, Egypt, and Amman, Jordan. At the moment, only the following summary of expected, after tax, cash flows is available. Although most operating outflows would be in Egyptian pounds or Jordanian dinars, some additional euro cash outflows would be necessary, as shown in the table on the next page.

The Egyptian pound (EGP) currently trades at EGP8.40/€ and the Jordanian dinar (JOD) trades at JOD0.78/€. Carloco expects the Egyptian pound to appreciate 5.0% per year against the euro, and the Jordanian dinar to depreciate 3.0% per year against the euro. If the weighted average cost of capital for Carloco Carpets Co. is 22.0%, which project looks more promising?

Transcribed Image Text:

Carloco in Cairo (after tax) 2015 2016 2017 2018 2019 2020 Net EGP cash flow (15,000) 10,000 8,200 9,000 9,500 10,000 Euro cash outflows (150) (200) (200) (200) Carloco in Amman (after tax) Net JOD cash flow (5,000) 4,000 4,500 5,000 55,000 6,000 Euro cash outflows (100) (150) (200) (300)