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) –75 +25 +30 +30 +35 +35 +35 32.6 Switzerland (millions of Swiss francs) –131 +35 +45 +45 +46 +46 +46 23.3 The spot exchange rate for euros is $1.45/€, while the rate for Swiss francs is SFr1.65/$. The interest rate is 4% in the United States, 3% in Switzerland, and 5% 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. a. Calculate the NPV in dollars for the German plant. b. Calculate the NPV in dollars for the Swiss plant.
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) –75 +25 +30 +30 +35 +35 +35 32.6 Switzerland (millions of Swiss francs) –131 +35 +45 +45 +46 +46 +46 23.3 The spot exchange rate for euros is $1.45/€, while the rate for Swiss francs is SFr1.65/$. The interest rate is 4% in the United States, 3% in Switzerland, and 5% 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. a. Calculate the NPV in dollars for the German plant. b. Calculate the NPV in dollars for the Swiss plant.
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 22P
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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
| C0 | C1 | C2 | C3 | C4 | C5 | C6 | ||
| Germany (millions of euros) | –75 | +25 | +30 | +30 | +35 | +35 | +35 | 32.6 |
| Switzerland (millions of Swiss francs) | –131 | +35 | +45 | +45 | +46 | +46 | +46 | 23.3 |
The spot exchange rate for euros is $1.45/€, while the rate for Swiss francs is SFr1.65/$. The interest rate is 4% in the United States, 3% in Switzerland, and 5% in the euro countries. The
a. Calculate the
b. Calculate the NPV in dollars for the Swiss plant.
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