Question

FINANCE 440 CHAPTER 1 Multinational Financial Management: An Overview Concept: Multinational Model Carolina Co. has expected cash flows of $100,000 from local business and 1 million Mexican pesos from business in Mexico at the end of period t. Assuming that the peso's value is expected to be $0.05 when converted into dollars, calculate the expected dollar cash flows. Austin Co. is a U.S.-based MNC that sells electronic games to U.S. consumers; it also has European subsidiaries that produce and sell the games in Europe. The firm's European earnings are denominated in euros, and these earnings are typically remitted to the U.S. parent. Last year, Austin Co. received $40 million in cash flows from its U.S. operations and 20 million euros from its European operations. Assume Euro was valued at $1.09 when remitted to the U.S. parent. Calculate Austin's cash flows last year.

Answer 1

1) cash flow from local business = $ 100,000

Mexican pesos = 1,000,000

1 Pesos = $ 0.05

1,000,000 pesos = 1,000,000 x 0.05dollars

= $50,000

expected cash flow in dollars = 100,000 + 50,000 = $150,000

therefore, the expected cash flow in dollars is $150,000

2) Cash flow from US = $ 40,000,000

Cash flow from Europe = 20,000,000 euros

1 euro = $ 1.09

20,000,000 euros = 20,000,000 x 1.09 dollars

= 21,800,000

Total cash flow last year = cash flow from US + cash flow from Europe

= 40,000,000 + 21,800,000

= 61,800,000 dollars.

Therefore, the Austin's last year's cash flow is $ 61,800,000