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5. Whiz Computers Inc manufactures notebook personal computers. Whiz seeks to establish a manufacturing subsidiary in Europe, either in the UK, or in Germany. Presently,

5. Whiz Computers Inc manufactures notebook personal computers. Whiz seeks to establish a manufacturing subsidiary in Europe, either in the UK, or in Germany. Presently, the following summary of expected after-tax cash flows is available. Although most operating outflows would be in pounds or euros, some U.S. dollar cash expenses are necessary. The following are year-end cash flows; assume it is year-end 2018 right now. I would suggest working the problem out in a spreadsheet such as Excel.

Year

2019

2020

2021

2022

2023

2024

Proj 1 --Whiz UK CFs

cash inflows

5,000

3,600

4,000

5,000

6,000

cash outflows

13,000

1,000

200

300

400

1,000

$ cash outflows

100

120

150

150

None

Proj 2 -- Whiz Germany CFs

cash inflows

6,000

5,000

5,000

6,000

6,500

cash outflows

14,000

1,000

200

300

400

1,000

$ cash outflows

100

120

150

150

None

Exchange rates are currently 0.67/$ and 0.77/$. Whizs currency advisor expects the UK pound to appreciate 4% per year against the dollar, and the euro to depreciate 2% per year against the dollar. If the US weighted average cost of capital for Whiz is 15% for both projects, which project looks most promising?

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