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 -65 -102 C₁ 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? +15 +25 C₂ +20 +35 Ca +20 +35 +40 C₁ +25 Cs +25 +25 +40 +40 The spot exchange rate for euros is EUR/USD 1.35, while the rate for Swiss francs is USD/CHF = 1.55. The interest rate is 6% in the United States, 5% in Switzerland, and 7% 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. IRR (N) 21.9 24.3 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
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 -65 -102 C₁ 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? +15 +25 C₂ +20 +35 Ca +20 +35 +40 C₁ +25 Cs +25 +25 +40 +40 The spot exchange rate for euros is EUR/USD 1.35, while the rate for Swiss francs is USD/CHF = 1.55. The interest rate is 6% in the United States, 5% in Switzerland, and 7% 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. IRR (N) 21.9 24.3 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
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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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)
Co
-65
-102
Ci
+15
+25
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
+20
+35
C₁ C₁
+20
+25
+35 +40
Cs Co
+25
+25
+40
+40
The spot exchange rate for euros is EUR/USD = 1,35, while the rate for Swiss francs is USD/CHF = 1.55. The interest rate is 6% in the
United States, 5% in Switzerland, and 7% 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.
IRR (%)
21.9
24.3
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
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