Impact of Uncertainty on an MNC’s Valuation Assume that Alpine Co. is a U.S. firm that has direct foreign investment in Brazil as a result of establishing a subsidiary there. Political conditions have changed in Brazil, but investors' best guesses of the future cash flows per year for Alpine Co. have not changed. Yet there is more uncertainty surrounding these best guesses of Alpine’s cash flows. In other words, the distribution of possible outcomes above and below the best guesses has expanded. Would the change in uncertainty cause the prevailing value of Alpine Co. to increase, decrease, or remain unchanged? 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 36QA
Textbook Problem

Impact of Uncertainty on an MNC’s Valuation Assume that Alpine Co. is a U.S. firm that has direct foreign investment in Brazil as a result of establishing a subsidiary there. Political conditions have changed in Brazil, but investors' best guesses of the future cash flows per year for Alpine Co. have not changed. Yet there is more uncertainty surrounding these best guesses of Alpine’s cash flows. In other words, the distribution of possible outcomes above and below the best guesses has expanded. Would the change in uncertainty cause the prevailing value of Alpine Co. to increase, decrease, or remain unchanged? Briefly explain.

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