A multinational corporation $($MNC$)$ can be valued in a similar manner to that of a domestic firm $--$ by calculating the present value of expected future cash flows. However, for an MNC$,$ the expected cash flows in each time period may be coming from any number of different countries and in any number of different foreign currencies. These cash flows in foreign currencies will need to be converted to domestic currency. In the case of a US$-$based MNC parent, the cash flows remitted from foreign subsidiaries must be converted to dollars.

This added level of complexity can be modeled with the following equation for the expected cash flows for time period t

:

E$($CF$$,$t$)=$t$=1$n$($E$($CFj$,$t$)\backslash$times E$($Sj$,$ t$))$

where

$$ CFj$,$t

is the cash flow denominated in foreign currency j

$,$ at the end of time period t

$$ Sj$,$ t

represents an the exchange rate for the foreign currency, measured in units of domestic currency per unit of foreign currency

Suppose that, at the end of the next time period t

$,$ a U$.$S$.-$based MNC parent named California Co$.$ expects to receive cash flows from it$$s local business as well as from a subsidiary located in Mexico. At the end of time period t

$,$ the cash flow expected from the local business is expected to be $$500,000$ while the cash flow expected from the subsidiary in Mexico is expected to be $1,200,000$ pesos. Assume the exchange rate for pesos is $$0\mathrm{.}05$ per peso.

The total expected cash flows received by this MNC at the end of period t

$,$ in dollars, is