Carpet Baggers, Incorporated, 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: Candidates Germany (millions of euros) Switzerland (millions of Swiss francs) Co -63 -106 a. Net present value b. Net present value c. Should the company go ahead with either project? d. If it must choose between them, which should it take? C1 +13 +23 C₂ +18 +33 C3 +18 +33 C4 +23 +38 Yes Swiss plant C5 +23 +38 The spot exchange rate for eurosis EUR/USD= 1.33, while the rate for Swiss francs is USD/CHF = 1.53. 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 state in dollars, a return in excess of 9% would be acceptable. C6 +23 +38 a. Calculate the NPV in dollars for the German plant. Note: 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. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. c. Should the company go ahead with either project? d. If it must choose between them, which should it take? million million IRR (%) 19.3 20.5
Carpet Baggers, Incorporated, 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: Candidates Germany (millions of euros) Switzerland (millions of Swiss francs) Co -63 -106 a. Net present value b. Net present value c. Should the company go ahead with either project? d. If it must choose between them, which should it take? C1 +13 +23 C₂ +18 +33 C3 +18 +33 C4 +23 +38 Yes Swiss plant C5 +23 +38 The spot exchange rate for eurosis EUR/USD= 1.33, while the rate for Swiss francs is USD/CHF = 1.53. 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 state in dollars, a return in excess of 9% would be acceptable. C6 +23 +38 a. Calculate the NPV in dollars for the German plant. Note: 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. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. c. Should the company go ahead with either project? d. If it must choose between them, which should it take? million million IRR (%) 19.3 20.5
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 22P
Related questions
Question
Transcribed Image Text:Carpet Baggers, Incorporated, 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:
Candidates
Germany (millions of euros)
Switzerland (millions of Swiss francs)
-63
-106
C1
+13
+23
a. Net present value
b. Net present value
c. Should the company go ahead with either project?
d. If it must choose between them, which should it take?
C₂
+18
+33
C3
+18
+33
Yes
Swiss plant
C4
+23
+38
C5
+23
+38
The spot exchange rate for euros is EUR/USD = 1.33, while the rate for Swiss francs is USD/CHF = 1.53. 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 9% would be acceptable.
million
million
C6
+23
+38
a. Calculate the NPV in dollars for the German plant.
Note: 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.
Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.
c. Should the company go ahead with either project?
d. If it must choose between them, which should it take?
IRR (%)
19.3
20.5
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