18.3 Grenouille Properties. Grenouille Properties (U.S.) expects to receive cash dividends from aFrench joint venture over the coming three years. The first dividend, to be paid one year fromnow on December 31, is expected to be €720,000. The dividend is then expected to grow10.0% per year over the following two years. The current exchange rate is $1.1940 = €1.00.Grenouille's weighted average cost of capital is 12%.a. What is the present value of the expected euro dividend stream if the euro is expectedto appreciate 4.00% per annum against the dollar?b. What is the present value of the expected dividend stream if the euro were to depreciate3.00% per annum against the dollar?

Present value is the equivalent value today based on the time and interest of the money to be…

Answered: Grenouille Properties. Grenouille…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter27: Multinational Financial Management

Section: Chapter Questions

Problem 13P

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Grenouille Properties. Grenouille Properties (U.S.) expects to receive cash dividends from a French joint venture over the coming three years. The first dividend, to be paid one year from now on December 31, is expected to be €720,000. The dividend is then expected to grow 10.1% per year over the following two years. The current exchange rate is $1.2348 = €1.00. Grenouille's weighted average cost of capital is 10.5%. a. What is the present value of the expected euro dividend stream if the euro is expected to appreciate 3.90% per annum against the dollar? b. What is the present value of the expected dividend stream if the euro were to depreciate 3.20% per annum against the dollar? a. What is the present value of the expected euro dividend stream if the euro is expected to appreciate 3.90% per annum against the dollar? Calculate the dividends in U.S. dollars for the next three years below: (Round to the nearest whole number for the dividends and round to four decimal places for the…
27. EXPOSURE OF MNCS TO EXCHANGE RATE MOVEMENTS Arlington Co. expects to receive 10 million euros in each of the next 10 years. It will need to obtain 2 million Mexican pesos in each of the next 10 years. The euro exchange rate is presently valued at $1.38 and is expected to depreciate by 2 percent each year over time. The peso is valued at $.13 and is expected to depreciate by 2 percent each year over time. Review the valuation equation for an MNC. Do you think that the exchange rate movements will have a favorable or unfavorable effect on the MNC?
You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 16 million. The cash flows from the project would be SF 4.5 million per year for the next five years. The dollar required return is 13 percent per year, and the current exchange rate is SF 1.10. The going rate on Eurodollars is 4 percent per year. It is 2 percent per year on Swiss francs. a. Convert the projected franc flows into dollar flows and calculate the NPV. (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.) b-1. What is the required return on franc flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-2. What is the NPV of the project in Swiss francs? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g.,…
5. A U.S. firm expects a receivable (cash inflow) of €1,000,000 in six months. The current exchange rate is $1.125/€. Firm wants to sell euros in six months (to convert the inflow into dollars). Consider 3 possible spot prices in six months. 1. $1.195/€ 2. $1.100/€ 3. $1.025/€ What kind of option, put or call, is appropriate to hedge with? In each scenario, what is the total amount of the firm's NET receivable? NET receivable implies you should consider the receivable as well as the hedging costs of buying the option. (Assume an option exercise price of $1.130/€ and option premium of $.016/€) | 1. 2. 3.
McDougan Associates (USA). McDougan Associates, a U.S.-based investment partnership, borrows €80,000,000 at a time when the exchange rate is $1.3460 = €1.00. The entire principal is to be repaid in three years, and interest is 6.250% per annum, paid annually in euros. The euro is expected to depreciate vis-à-vis the dollar at 3% per annum. What is the effective cost of this loan for McDougan?
Suppose one-year German Treasury bill pays 4.13% and one-year Canadian Treasury bill pays 2.95%. The current spot exchange rate is 1 Euro (EUR)= 1.3694 Canadian dollar (CAD) and the one-year forward exchange rate is 1 EUR = 1.3335 CAD. How much arbitrage profit can an investor earn on an investment value of CAD 4 million Answer: CAD (DO NOT ROUND YOUR CALCULATIONS UNTIL YOU REACH THE FINAL ANSWER. ENTER YOUR RESPONSE ROUNDED TO TWO DECIMAL PLACES AND NO SEPARATOR FOR THOUSANDS.)
Required: Suppose a U.S. investor wishes to invest in a British firm currently selling for £90 per share. The investor has $36,000 to invest, and the current exchange rate is $2/£. Consider three possible prices per share at £88, £93, and £98 after 1 year. Also, consider three possible exchange rates at $1.80/£, $2/£, and $2.20/£ after 1 year. Calculate the standard deviation of both the pound- and dollar-denominated rates of return if each of the nine outcomes (three possible prices per share in pounds times three possible exchange ates) is equally likely. (Do not round intermediate calculations. Round your percentage answers to 2 decimal places.) Standard deviation of pound-denominated return Standard deviation of dollar-denominated return %
Suppose one-year German Treasury bill pays 4.34% and one-year Canadian Treasury bill pays 3%. The current spot exchange rate is 1 Euro (EUR) = 1.3581 Canadian dollar (CAD) and the one-year forward exchange rate is 1 EUR = 1.3238 CAD. How much %3D arbitrage profit can an investor earn on an investment value of CAD 3 million?
You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 13.8 million. The cash flows from the project would be SF 4.1 million per year for the next five years. The dollar required return is 12 percent per year, and the current exchange rate is SF 1.12. The going rate on Eurodollars is 5 percent per year. It is 4 percent per year on Euroswiss. a. Convert the projected franc flows into dollar flows and calculate the NPV. (Do not round intermediate calculations and enter your answer in dollars, not in millions, rounded to 2 decimal places, e.g., 1,234,567.89.) b-1. What is the required return on franc flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-2. What is the NPV of the project in Swiss francs? (Do not round intermediate enter your answer in francs, not in millions, rounded to 2 calculations and decimal places, e.g., 1,234,567.89.) b-3.…
29. You are analyzing a potential 3-year investment in Switzerland. It will require an initial investment of SFr 540,000.00 and is forecasted to yield cashflows of SFr 540,000.00 for the next 3 years. As of today, the spot exchange rate is $0.6667 / SFr and the rates of inflation expected to prevail for the next year in the US is 7% and in 8% in Switzerland. Your estimated cost of capital in dollars is 16.7%. What is the NPV in dollars? (a) $425,391.63 (b) $245,409.63 (c) $638,055.54 (d) $548,449.87 (e) None of the above
Chapman Inc.’s Mexican subsidiary, V. Gomez Corporation, is expected topay to Chapman 50 pesos in dividends in 1 year after all foreign and U.S.taxes have been subtracted. The exchange rate in 1 year is expected to be0.10 dollars per peso. After this, the peso is expected to depreciate againstthe dollar at a rate of 4% a year forever due to the different inflationrates in the United States and Mexico. The peso-denominated dividend isexpected to grow at a rate of 8% a year indefinitely. Chapman owns 10 million shares of V. Gomez. What is the present value of the dividend stream,in dollars, assuming V. Gomez’s cost of equity is 13%?
Q.1 a) Perth International Co., an Australian multinational company, forecasts 70 million Australian dollars (A$) earnings next year (i.e., year-one). It expects 50 million Chinese yuan (CNY), 49 million Indian rupees (INR) and 33 million Malaysian ringgit (MYR) proceeds of its three subsidiaries in year-one. It also forecasts the year-one exchange rates A$0.3791/CNY, A$0.0420/INR and A$0.6130/MYR. Calculate the total Australian dollar (A$) cash flow for year-one. (enter the whole number with no sign or symbol) b) Perth International anticipates a 4.38 per cent increase in the year-one income of its subsidiaries in year-two. It has information that the current 5.25 per cent, 8.34 per cent, 13.71 per cent and 10.86 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 26 per cent, 50 per cent and 40 per cent of their year-two…

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