Calculate the npv in two different ways

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Carpet Baggers Inc is a US company that is proposing to construct a new bagging plant in Germany. The forecasted cash flows from the proposed plant are as follows:

Year

0

1

2

3

4

5

6

Euros

-60

10

15

15

20

20

20

The spot exchange rate for euros is $1.3/€. The riskless interest rate is 5 percent in the US and 6 percent in Euros. The financial manager has suggested that, if the cash flows were stated in dollars, a return in excess of 10 percent would be acceptable.

Should the company go ahead with the project? Calculate the NPV in two different ways and show they are the same.

Reference no: EM133061719

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