Valuation of an MNC Odessa Co., Midland Co., and Roswell Co. are U.S. firms in the same industry and have the same valuation as of yesterday, based on the present value of the future cash flows of each company. Odessa Co. obtains a large amount of its supplies invoiced in euros from European countries, and all of its sales are invoiced in dollars. Midland has a large subsidiary in Europe that does all of its business in euros and remits profits to the U.S. parent every year. Roswell Co. has no international business. As of this morning, an event occurred that you believe will cause a substantial depreciation of the euro against the dollar over time. Assume that this event will not change the business operations of the firms mentioned in this question. Which firm will have the highest valuation based on your expectations? Briefly explain.

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 1, Problem 35QA
Textbook Problem

Valuation of an MNC Odessa Co., Midland Co., and Roswell Co. are U.S. firms in the same industry and have the same valuation as of yesterday, based on the present value of the future cash flows of each company. Odessa Co. obtains a large amount of its supplies invoiced in euros from European countries, and all of its sales are invoiced in dollars. Midland has a large subsidiary in Europe that does all of its business in euros and remits profits to the U.S. parent every year. Roswell Co. has no international business. As of this morning, an event occurred that you believe will cause a substantial depreciation of the euro against the dollar over time. Assume that this event will not change the business operations of the firms mentioned in this question. Which firm will have the highest valuation based on your expectations? Briefly explain.

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