Question

Hi everyone, does any one would be able to help me with this question pease? Find...

Hi everyone, does any one would be able to help me with this question pease?

Find the V (value) of a MNC based on the following information.

t=1 t=2

Exp. CF from local market 200 200

Exp. CF from a foreign market 300 . 500

Exp. Exchange rate (S) 0.6 . 0.7

Required rate of return (k) . 0.2   0.2

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Answer #1

Value at Year 1 =

Cash Flow from Local Market = 200

Cash Flow from Foreign Market = 300

Equivalent Cash Flow from Foreign Market in Local Market = 300 * 0.6 = 180

Total Cash Flow = 200+180 = 380

Value of MNC = Cash Flow / Required Rate of return

= 380/0.2

= 1900

Value at Year 2 =

Cash Flow from Local Market = 200

Cash Flow from Foreign Market = 500

Equivalent Cash Flow from Foreign Market in Local Market = 500 * 0.7 = 350

Total Cash Flow = 200+350 = 550

Value of MNC = Cash Flow / Required Rate of return

= 550/0.2

= 2750

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