Impact of Translation Exposure on Stock Valuation Spencer Co., a U.S. firm, has a large subsidiary in Singapore that generates a large amount of the parent’s earnings. Spencer’s stock is usually valued at approximately 16 times its reported earnings per share. The earnings generated by the Singapore subsidiary in this period are the same as those in the previous period. The Singapore dollar has depreciated substantially against the U.S. dollar during this period. None of the earnings generated by the Singapore subsidiary in this period will be remitted to the U.S. parent at this time. How will the stock price of Spencer be affected (if at all) when the earnings are reported at the end of this period? 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 10, Problem 47QA
Textbook Problem

Impact of Translation Exposure on Stock Valuation Spencer Co., a U.S. firm, has a large subsidiary in Singapore that generates a large amount of the parent’s earnings. Spencer’s stock is usually valued at approximately 16 times its reported earnings per share. The earnings generated by the Singapore subsidiary in this period are the same as those in the previous period. The Singapore dollar has depreciated substantially against the U.S. dollar during this period. None of the earnings generated by the Singapore subsidiary in this period will be remitted to the U.S. parent at this time. How will the stock price of Spencer be affected (if at all) when the earnings are reported at the end of this period? Explain.

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