(ii) 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 10.7

The spot exchange rate for euros is $1.3/, while the rate for Swiss francs is SFr 1.5/$. 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?

(5 marks)