ZuoTi.Pro
Question

After all foreign and U.S. taxes, a U.S. corporation expects to receive 2 pounds of dividends...

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 $2.03 per pound, and the pound is expected to depreciate 7% against the dollar each year for an indefinite period. The dividend (in pounds) is expected to grow at 9% 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 16% for the subsidiary. Round your answer to the nearest cent. Do not round intermediate steps.

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

What is the present value in dollars of its equity ownership of the subsidiary?
=7*(2*2.03/1.16*1/(1-(1-7%)*(1+9%)/1.16))*10^6
=194258373.20574200

0 0
Add a comment
Know the answer?
Add Answer to:
After all foreign and U.S. taxes, a U.S. corporation expects to receive 2 pounds of dividends...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • After all foreign and U.S. taxes, a U.S. corporation expects to receive 5 pounds of dividends...

    After all foreign and U.S. taxes, a U.S. corporation expects to receive 5 pounds of dividends per share from a British subsidiary this year. The exchange rate at the end of the year is expected to be $1.61 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 6 million shares of the...

  • 1-year forward exchange rate, U.S. dollars required to buy 1 peso $0.12 Annual depreciation rate of peso against...

    1-year forward exchange rate, U.S. dollars required to buy 1 peso $0.12 Annual depreciation rate of peso against dollar 5.00% Peso-denominated dividend annual growth rate 10.00% Number of common shares owned 5,000,000 Cost of equity, rs 15.00% Chapman, 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...

  • Sevall Inc's Mexican Subsidiary, Cancunrocks, is expected to pay Sevall 1 Peso per share in 1...

    Sevall Inc's Mexican Subsidiary, Cancunrocks, is expected to pay Sevall 1 Peso per share in 1 year after all foreign and US taxes have been accounted for. The exchange rate in 1 year is expected to be $0.10 dollars per peso. After this, the peso is expected to depreciate against the dollar by 2% forever due to inflation differences between the US and Mexico. The peso denominated dividend is expected to grow at 7% a year indefinitely. Sevall owns 10M...

  • North Bank has been borrowing in the U.S. markets and lending abroad, thereby incurring foreign exchange...

    North Bank has been borrowing in the U.S. markets and lending abroad, thereby incurring foreign exchange risk. In a recent transaction, it issued a one-year $2.40 million CD at 5 percent and is planning to fund a loan in British pounds at 7 percent for a 2 percent expected spread. The spot rate of U.S. dollars for British pounds is $1.4500/£1. a. However, new information now indicates that the British pound will appreciate such that the spot rate of U.S....

  • North Bank has been borrowing in the U.S. markets and lending abroad, thereby incurring foreign exchange...

    North Bank has been borrowing in the U.S. markets and lending abroad, thereby incurring foreign exchange risk. In a recent transaction, it issued a one-year $2.50 million CD at 4 percent and is planning to fund a loan in British pounds at 7 percent for a 3 percent expected spread. The spot rate of U.S. dollars for British pounds is $1.440/£1. a. However, new information now indicates that the British pound will appreciate such that the spot rate of U.S....

  • North Bank has been borrowing in the U.S. markets and lending abroad, thereby incurring foreign exchange...

    North Bank has been borrowing in the U.S. markets and lending abroad, thereby incurring foreign exchange risk. In a recent transaction, it issued a one-year $2.50 million CD at 4 percent and is planning to fund a loan in British pounds at 7 percent for a 3 percent expected spread. The spot rate of U.S. dollars for British pounds is $1.440/£1. a. However, new information now indicates that the British pound will appreciate such that the spot rate of U.S....

  • North Bank has been borrowing in the U.S. markets and lending abroad, thereby incurring foreign exchange...

    North Bank has been borrowing in the U.S. markets and lending abroad, thereby incurring foreign exchange risk. In a recent transaction, it issued a one-year $2.50 million CD at 4 percent and is planning to fund a loan in British pounds at 7 percent for a 3 percent expected spread. The spot rate of U.S. dollars for British pounds is $1.440/£1. a. However, new information now indicates that the British pound will appreciate such that the spot rate of U.S....

  • A manager of a corporation based in U.S. is expecting to receive 1,000,000 UK pounds in...

    A manager of a corporation based in U.S. is expecting to receive 1,000,000 UK pounds in 1 year from corporation’s UK client.At that time the manager is planning to exchange UK pounds for US dollars. Current market rates are as follows: U.S. 1-yearinterest rate is 6% per annum, UK 1-year interest rate is 4.5% per annum, the spot price of UK pound is $1.55, the forwardprice of UK pound is $1.56. Assume discrete compounding. What is the synthetic forward price...

  • A manager of a corporation based in U.S. is expecting to receive 1,000,000 UK pounds in...

    A manager of a corporation based in U.S. is expecting to receive 1,000,000 UK pounds in 1 year from corporation's UK client. At that time the manager is planning to exchange UK pounds for US dollars. Current market rates are as follows: U.S. 1-year interest rate is 6% per annum. UK 1-year interest rate is 4.5% per annum, the spot price of UK pound is $1.55, the forward price of UK pound is $1.56. Assume discrete compounding. (a) What is...

  • Sullivan's Island Company began operating a subsidiary in a foreign country on January 1,2017, by investing capital in the amount of 75,000 pounds. The subsidiary immediately borrowed 160,000 pou...

    Sullivan's Island Company began operating a subsidiary in a foreign country on January 1,2017, by investing capital in the amount of 75,000 pounds. The subsidiary immediately borrowed 160,000 pounds on a five-year note with 10 percent interest payable annually beginning on January 1, 2018. The subsidiary then purchased for 235,000 pounds a building that had a 10-year expected life and no salvage value and is to be depreciated using the straight-ine method. Also on January 1, 2017, the subsidiary rented...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT