Factors That Affect the NPV of a Divestiture Clemson Co. (a U.S. firm) has a subsidiary in Germany that generates substantial earnings in euros each year. One week ago, Clemson received an offer from a company to purchase the German subsidiary, and it has not yet responded to this offer. since last week, the expected stream of euro cash flows has not changed, but the forecasts of the euro’s value in future periods have been revised downward. Will the NPV of the divestiture be larger than, smaller than, or the same as it was last week? Briefly explain. since last week, the expected stream of euro cash flows has not changed, but the long-term interest rate in the United States has declined. Will the NPV of the divestiture be larger than, smaller than, or the same as it was last week? 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 15, Problem 22QA
Textbook Problem

Factors That Affect the NPV of a Divestiture Clemson Co. (a U.S. firm) has a subsidiary in Germany that generates substantial earnings in euros each year. One week ago, Clemson received an offer from a company to purchase the German subsidiary, and it has not yet responded to this offer.

  1. since last week, the expected stream of euro cash flows has not changed, but the forecasts of the euro’s value in future periods have been revised downward. Will the NPV of the divestiture be larger than, smaller than, or the same as it was last week? Briefly explain.
  2. since last week, the expected stream of euro cash flows has not changed, but the long-term interest rate in the United States has declined. Will the NPV of the divestiture be larger than, smaller than, or the same as it was last week? Briefly explain.

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