Question

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 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 5 million shares of V. Gomez. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. What is the present value of the dividend stream, in dollars, assuming V. Gomez's cost of equity is 15%? Do not round intermediate calculations. Round your answer to the nearest dollar. 315

Answer 1

=5*10^6*(50*0.12/1.15+50*0.12*0.95/1.15^2+50*0.12*0.95^2/1.15^3...)
=5*10^6*(50*0.12/1.15*1/(1-0.95/1.15))
=150000000.00