Fundamentals of Financial Management, Concise Edition
9th Edition
ISBN: 9781337087544
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Chapter 17, Problem 16P
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 $1.53 per pound, and the pound is expected to
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After all foreign and U.S. taxes, a U.S. corporation expects to receive 4 pounds of dividends per share from a British subsidiary this year. The exchange rate at the end of the year is expected to be $1.27 per pound, and the pound is expected to depreciate 4% against the dollar each year for an indefinite period. The dividend (in pounds) is expected to grow at 11% a year indefinitely. The parent U.S. corporation owns 7 million shares of the subsidiary. What is the present value in dollars of its equity ownership of the subsidiary? Assume a cost of equity capital of 13% for the subsidiary. Do not round intermediate calculations. Round your answer to the nearest dollar.$
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 $1.33 per pound, and the pound is expected to depreciate 3% against the dollar each year for an indefinite period. The dividend (in pounds) is expected to grow at 8% a year indefinitely. The parent U.S. corporation owns 9 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 12% for the subsidiary. Do not round intermediate calculations. Round your answer to the nearest dollar.
After all foreign and U.S. taxes, a U.S. corporationexpects 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 $1.29 per pound, and the poundis 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. corporationowns 10 million shares of the subsidiary. What is the present value in dollars of its equityownership of the subsidiary? Assume a cost of equity capital of 11% for the subsidiary.
Chapter 17 Solutions
Fundamentals of Financial Management, Concise Edition
Ch. 17 - Why do U.S. corporations build manufacturing...Ch. 17 - If the euro depredates against the U.S. dollar,...Ch. 17 - Prob. 3QCh. 17 - Should firms require higher rates of return on...Ch. 17 - Prob. 5QCh. 17 - Prob. 6QCh. 17 - Prob. 7QCh. 17 - Prob. 1PCh. 17 - Prob. 2PCh. 17 - Prob. 3P
Ch. 17 - Prob. 4PCh. 17 - Prob. 5PCh. 17 - Prob. 6PCh. 17 - CURRENCY APPRECIATION Suppose that 1 Danish krone...Ch. 17 - Prob. 8PCh. 17 - Prob. 9PCh. 17 - INTEREST RATE PARITY Assume that interest rate...Ch. 17 - PURCHASING POWER PARITY in the spot market, 15.4...Ch. 17 - Prob. 12PCh. 17 - SPOT AND FORWARD RATES Arvin Australian Imports...Ch. 17 - Prob. 14PCh. 17 - RESULTS OF EXCHANGE RATE CHANGES Early in June...Ch. 17 - FOREIGN INVESTMENT ANALYSIS After all foreign and...Ch. 17 - FOREIGN CAPITAL BUDGETING Sandrine Machinery is a...Ch. 17 - MULTINATIONAL FINANCIAL MANAGEMENT Yohe...Ch. 17 - MULTINATIONAL FINANCIAL MANAGEMENT Citrus Products...Ch. 17 - DISCUSSION QUESTIONS Recreate Table 17.1 for the...Ch. 17 - Prob. 2DQCh. 17 - Some of the websites show graphs indicating how...Ch. 17 - Prob. 4DQ
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- A U.S. company can borrow 10,000 pounds in Great Britain for 6% interest, paying back 10,600 pounds in one year. Alternatively, the U.S. company can borrow an equivalent amount of U.S dollars in the United States and pay 13% interest. Assuming capital markets are efficient, estimate the expected inflation rate in the United States if inflation in Great Britain is expected to be zero.arrow_forwardThe 1 year (lending or borrowing) rate in the UK is 8%; the 1 year (lending or borrowing) rate in the United States is 5%. Currently the spot exchange rate if $1.81 per British pound; the 1 year forward rate is $1.79 per British pound. If you are able to borrow $1,000,000 in the US to lend (as British pounds) in the UK, how much a risk free profit can you create over the next year? Give typing answer with explanation and conclusionarrow_forwarda) Assume the following information: 180‑day U.S. interest rate = 8% 180‑day British interest rate = 9% 180‑day forward rate of British pound = $1.50 Spot rate of British pound = $1.48 Assume that a U.S. exporter will receive 400,000 pounds in 180 days. Would it be better off using a forward hedge or a money market hedge? Substantiate your answer with estimated revenue for each type of hedge. b) As treasurer of a U.S. exporter to Canada, you must decide how to hedge (if at all) future receivables of 250,000 Canadian dollars 90 days from now. Put options are available for a premium of $.03 per unit and an exercise price of $.80 per Canadian dollar (CA$). The forecasted spot rate of the CA$ in 90 days follows: Future Spot Rate Probability (%) $.75 50…arrow_forward
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- Chapman Inc.’s Mexican subsidiary, V. Gomez Corporation, is expected topay to Chapman 50 pesos in dividends in 1 year after all foreign and U.S.taxes have been subtracted. The exchange rate in 1 year is expected to be0.10 dollars per peso. After this, the peso is expected to depreciate againstthe dollar at a rate of 4% a year forever due to the different inflationrates in the United States and Mexico. The peso-denominated dividend isexpected to grow at a rate of 8% a year indefinitely. Chapman owns 10 million shares of V. Gomez. What is the present value of the dividend stream,in dollars, assuming V. Gomez’s cost of equity is 13%?arrow_forwardAssume the following information:U.S. investors have $1,000,000 to invest: 1-year deposit rate offered by U.S. banks = 10% 1-year deposit rate offered on British pounds = 13.5% 1-year forward rate of Swiss francs = $1.26 Spot rate of Swiss franc = $1.30 Given this information: A. interest rate parity exists and covered interest arbitrage by U.S. investors results in a yield above what is possible domestically. B. interest rate parity doesn't exist and covered interest arbitrage by U.S. investors results in a yield below what is possible domestically. C. interest rate parity exists and covered interest arbitrage by U.S. investors results in the same yield as investing domestically. D. interest rate parity doesn't exist and covered interest arbitrage by U.S. investors results in a yield above what is possible domestically.arrow_forwardChapman, Inc.'s Mexican subsidiary, V. Gomez Corporation, is expected to pay to Chapman 50 pesos in dividends in 1 year after all foreign and U.S. taxes have been subtracted. The exchange rate in 1 year is expected to be $0.12 per peso. After this, the peso is expected to depreciate against the dollar at a rate of 5% a year forever due to the different inflation rates in the United States and Mexico. The peso-denominated dividend is expected to grow at a rate of 10% a year indefinitely. Chapman owns 10 million shares of V. Gomez. What is the present value of the dividend stream, in dollars, assuming V. Gomez's cost of equity is 12%? Do not round intermediate calculations. Round your answer to the nearest dollararrow_forward
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