Werkzeugmaschinen GmbH is a Germany-based manufacturer of hand-held power tools. The company is currently investigating two investment projects only one of which can be undertaken.

PROJECT 1： involves extending the company's production facility in Germany. The plant will cost Euro 25 million and is expected to create additional annual profits of Euro 3.38 million for the 7-year life of the project. The plant will be fully depreciated on a straight line basis over 7 years. It has been decided that the new facility must bear its share of existing overheads and this amount has been set Euro 200,000 p.a.

PROJECT 2: involves setting up an independent manufacturing facility in the USA. The cost will be UDS 15.75 million and the project is expected to earn annual net cash flows of USD 4.5 million throughout the 7-year life of the plant.
Whichever plan is adopted will be financed from exsting resources. Werkzeugmaschinen GmbH is financed by 70% equity and 30% debt and estimate their cost of equity finance to be 22.3% and cost of debt to be 7.97%
Assume that the current spot rate of USD 1.275/Euro is constant throughout the life of the US project.

(1): Advise Werkyeugmaschinen which project (if any) they should undertake on financial basis giving your detailed reasoning and supporting calculations.

(2): If the UK manufacturing facility could be sold at the end of year 2:
(a). What is the minimum price the firm should accept?
(b). If the expected price is USD 15 million would this alter your answer to question (1)?
(c). What selling price receivable at the end of year 2 would make you indifferent to selecitng either project?

(3)State any assumption you have made in the above calculations.


回答用中英文皆可，再次拜谢高手的解答！