Chapter 10, Problem 46QA

FOREIGN INVESTMENT ANALYSIS After all foreign and U.S. taxes, a U.S. corporation expects to receive 2 pounds of dividends per share from a British subsidiary this year. The exchange rate at the end of the year is expected to be 1.30 per pound, and the pound is expected to depreciate 5% against the dollar each year for an indefinite period. The dividend (in pounds) is expected to grow at 10% a year indefinitely. The parent U.S. corporation owns 10 million shares of the subsidiary. What is the present value in dollars of its equity ownership of the subsidiary? Assume a cost of equity capital of 11% for the subsidiary.

International financial management: MCQ An UK- based MNC expect to receive £20,000 from domestic operations and 20,000 Euro (€) from a business in Belgium. If the pound’s value is €1.05, the expected total cash flows in pound are: (a) £41,000 (b) £39,470 (c) £45,000 (d) none of the above

1. Perth International  Co., an Australian multinational company, forecasts 63 million Australian dollars (A$) earnings next three years.  It expects 50 million Chinese yuan (CNY), 44 million Indian rupees (INR) and 39 million Malaysian ringgit (MYR) proceeds of its three subsidiaries in year-one. It also forecasts the year-one exchange rates A$0.2447/CNY, A$0.043/INR and A$0.5791/MYR. Calculate the total Australian dollar (A$) cash flow for year-one. (enter the whole number with no sign or symbol) 2.  Perth International anticipates a 5.06 per cent increase in the year-one income of its subsidiaries in year-two. It has information that the current 4.83 per cent, 8.76 per cent, 13.53 per cent and 11.08 per cent nominal interest rate in Australia, China, India and Malaysia, respectively, will remain the same in the next three years. Due to foreign currency higher nominal interest rate, subsidiaries will invest 23 per cent, 56 per cent and 45 per cent of their year-two earnings in China,…