Fundamentals of Financial Manageme...
Fundamentals of Financial Manageme...
FOREIGN INVESTMENT ANALYSIS After all foreign and U.S. taxes, a U.S. corporation expects to receive 3 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 67 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 13% for the subsidiary.
To determine: The present value of the equity in terms of dollars.
Introduction:
Exchange rate is at which one currency of a country is exchanged with the currency of another country is termed as exchange rate.
Currency depreciation indicates the loss or negative change in the currency’s value in reference to any other currency. The change may be due to some factors such as change in government policies, and fluctuation in interest rates.
Given information:
The expected amount of dividends per share is 3 pounds.
The exchange rate of a pound in dollar is $1.67.
The value of pound in reference of dollar is depreciated at 5% or 0.05.
The amount of dividend expected to appreciate (in pounds) by 10% or 0.10.
The number of shares of subsidiary is 10 million.
The cost of equity is 13% or 0.13.
The formula to calculate the price per share:
Where,
The formula to calculate the growth in dividend:
The formula to calculate total equity:
Compute āgā (Growth in dividend):
Chapter 19 Solutions
Additional Business Solutions
Find more solutions based on key concepts
Show solutions addA stock had a 12% return last year, a year when the overall stock market decline. Does this mean that the stock...
Fundamentals of Financial Management (MindTap Course List)
Following is a list of eight generic control goals from the chapter, followed by eight descriptions of either p...
Accounting Information Systems
FUTURE VALUE OF AN ANNUITY Your client is 26 years old. She wants to begin saving for retirement, with the firs...
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
FINDING THE REQUIRED INTEREST RATE Your parents will retire in 18 years. They currently have 250,000 saved, and...
Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)
Should an economic model describe reality exactly?
Principles of Microeconomics (MindTap Course List)
(Externalities) Suppose there is an external cost, or negative externality, associated with production of a cer...
ECON: MICRO4 (New, Engaging Titles from 4LTR Press)
Interperiod Tax Allocation Peterson Company has computed its pretax financial income to be 66,000 in 2019 after...
Intermediate Accounting: Reporting And Analysis
Corporations do more dollar volume of business than sole proprietorships and partnerships combined.
College Accounting, Chapters 1-27
INSTRUCTOR: Visit the Instructor Companion Website for lecture notes, solutions, discussion guides, and other r...
Essentials of Business Communication (MindTap Course List)
Explain how relation-ship marketing can move customers up the loyalty ladder.
Contemporary Marketing
Price, Variable Cost per Unit, Contribution Margin, Contribution Margin Ratio, Fixed Expense For each of the fo...
Managerial Accounting: The Cornerstone of Business Decision-Making
The following partial work sheet covers the affairs of Masanto and Company for the year ended June 30. Required...
College Accounting (Book Only): A Career Approach
How does the Civil Rights Act influence the selection and promotion of employees?
Foundations of Business (MindTap Course List)
The following data show the number of rental cars in service for three rental car companies: Hertz, Avis, and D...
Statistics for Business & Economics, Revised (MindTap Course List)
(Prepared by Will Richens and Michael Catchpole, Lehigh University) CUSTOM FABRICATIONS Inc., is a bicycle manu...
Accounting Information Systems
Bond premium, entries for bonds payable transactions Saverin Inc. produces and sells outdoor equipment. On July...
Accounting (Text Only)
Changes in current operating assets and liabilitiesindirect method Huluduey Corporations comparative balance sh...
Financial & Managerial Accounting
Strategic Thinking Blueprints77 Strategic thinking involves a mental blueprint that includes A desired future, ...
Management, Loose-Leaf Version
United Rug Company is a small rug retailer owned and operated by Pat Kirwan. After the accounts have been adjus...
Financial Accounting
Lean as a strategy The American textile industry has moved much of its operations offshore in the pursuit of lo...
Financial & Managerial Accounting
Chart of accounts LeadCo School is a newly organized business that teaches people how to inspire and influence ...
Financial And Managerial Accounting
How are sales to customers using MasterCard and VISA recorded?
Financial Accounting
Purchase-related transactions using periodic inventory system Selected transactions for Betz Company during Jul...
Corporate Financial Accounting
Answer the following questions about inflation. a. What would be the effect of unexpected inflation on each of ...
Exploring Economics
What are the two main causes of market failure? Give an example of each.
Principles of Macroeconomics (MindTap Course List)
You are hired as a consultant to a monopolistically competitive firm. The firm reports the following informatio...
Principles of Economics (MindTap Course List)
Discuss target market strategies
MKTG 12:STUDENT ED.-TEXT
Imagine a society that produces military goods and consumer goods, which well call guns and butter. a. Draw a p...
Essentials of Economics (MindTap Course List)
You were planning to spend Saturday working at your part-time job, but a friend asks you to go skiing. What is ...
Brief Principles of Macroeconomics (MindTap Course List)
J.D. Power and Associates surveys new automobile owners to learn about the quality of recently purchased vehicl...
STATISTICS F/BUSINESS+ECONOMICS-TEXT
On August 31, Baginski and Company receives its bank statement (shown on the next page). The company deposits i...
College Accounting (Book Only): A Career Approach
Examine the REA model for Hera Industrial Supply that appears in Figure 6.18. Determine the maximum cardinaliti...
Pkg Acc Infor Systems MS VISIO CD
Consider two policiesa tax cut that will last for only one year and a tax cut that is expected to be permanent....
Principles of Macroeconomics (MindTap Course List)
Describe leveraging and give an example of how a corporation can gain leverage by issuing bonds.
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
Duweynie Pottery, Inc., is divided into two operating divisions: Pottery and Retail. The company allocates Powe...
Cornerstones of Cost Management (Cornerstones Series)
Earnings per share, discontinued operations The nel income reported on the income statement of Cutler Co. was 4...
Corporate Financial Accounting
What are the benefits associated with maintaining control and visibility of transportation shipments?
Purchasing and Supply Chain Management
Whether an economist argues in favor of a rise in government spending (as an expansionary fiscal policy measure...
Macroeconomics
The taxable wages and withheld taxes for Stafford Company (EIN 00-0001462), semiweekly depositor, for the first...
PAYROLL ACCT.,2019 ED.(LL)-TEXT
Installment bonds differ from typical bonds in what way? Essentially they are the same. The entire principal ba...
Cornerstones of Financial Accounting
The courts have ruled that it is a reasonable restraint of trade (and therefore permissible) for the owner of a...
Microeconomics
Assume you are given the following data for country Alpha and country Beta: a. Based on the GDP per capita data...
Economics For Today
Use the RAND function and the Copy command to generate 100 random numbers. a. What fraction of the random numbe...
Practical Management Science
Assume that as of January 1, 20Y8, Sylvester Con- suiting has total assets of $500,000 and total assets of $150...
Survey of Accounting (Accounting I)
In an efficient market, deadweight loss is a. maximum. b. minimum. c. constant. d. zero.
Micro Economics For Today
What is the major difference between the market output and the socially optimal output?
Economics (MindTap Course List)
