Chapman Inc.’s Mexican subsidiary, V. Gomez Corporation, is expected topay to Chapman 50 pesos in dividends in 1 year after all foreign and U.S.taxes have been subtracted. The exchange rate in 1 year is expected to be0.10 dollars per peso. After this, the peso is expected to depreciate againstthe dollar at a rate of 4% a year forever due to the different inflationrates in the United States and Mexico. The peso-denominated dividend isexpected to grow at a rate of 8% a year indefinitely. Chapman owns 10 million shares of V. Gomez. What is the present value of the dividend stream,in dollars, assuming V. Gomez’s cost of equity is 13%?
Chapman Inc.’s Mexican subsidiary, V. Gomez Corporation, is expected topay to Chapman 50 pesos in dividends in 1 year after all foreign and U.S.taxes have been subtracted. The exchange rate in 1 year is expected to be0.10 dollars per peso. After this, the peso is expected to depreciate againstthe dollar at a rate of 4% a year forever due to the different inflationrates in the United States and Mexico. The peso-denominated dividend isexpected to grow at a rate of 8% a year indefinitely. Chapman owns 10 million shares of V. Gomez. What is the present value of the dividend stream,in dollars, assuming V. Gomez’s cost of equity is 13%?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter27: Multinational Financial Management
Section: Chapter Questions
Problem 13P
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Chapman Inc.’s Mexican subsidiary, V. Gomez Corporation, is expected to
pay to Chapman 50 pesos in dividends in 1 year after all foreign and U.S.
taxes have been subtracted. The exchange rate in 1 year is expected to be
0.10 dollars per peso. After this, the peso is expected to
the dollar at a rate of 4% a year forever due to the different inflation
rates in the United States and Mexico. The peso-denominated dividend is
expected to grow at a rate of 8% a year indefinitely. Chapman owns 10 million shares of V. Gomez. What is the present value of the dividend stream,
in dollars, assuming V. Gomez’s
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