7.3

Grenouille Properties. Grenouille Properties (U.S.) expects to receive cash dividends from a French joint venture over the coming three years. The first dividend, to be paid in one year, is expected to be 700,000. The dividend is then expected to grow 10.1% per year over the following two years. The current exchange rate is $1.3578/. Grenouille's weighted average cost of capital is 14%.

a. What is the present value of the expected dividend stream if the euro is expected to appreciate 4.20% per annum against the dollar?

b. What is the present value of the expected dividend stream if the euro were to depreciate 3.10% per annum against the dollar?