22. Factors That Affect the NPV of a Divesti

ture Clemson Co. (a U.S. firm) has a subsidiary in

Germany that generates substantial earnings in euros

each year. One week ago, it received an offer from a

company to purchase the subsidiary, and it has not yet

responded to this offer.

a. Since last week, the expected stream of euro cash

flows has not changed, but the forecasts of the euros

value in future periods have been revised downward.

Will the NPV of the divestiture be larger or smaller or

the same as it was last week? Briefly explain.

b. Since last week, the expected stream of euro cash

flows has not changed, but the long-term interest rate

in the United States has declined. Will the NPV of the

divestiture be larger or smaller or the same as it was

last week? Briefly explain.