Question
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
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) | 72 | +22 | +27 | +27 | +32 | +32 | +32 | 29.8 |
Switzerland (millions of Swiss francs) | 111 | +32 | +42 | +42 | +47 | +47 | +47 | 28.6 |
The spot exchange rate for euros is $1.42/, while the rate for Swiss francs is SFr1.62/$. 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 12% would be acceptable.
a. Calculate the NPV in dollars for the German plant. (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. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
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