Question
a. Perth International Co., an Australian multinational company, forecasts 64 million Australian dollars (A$) earnings next three years. It expects 54 million Chinese yuan (CNY),
a. Perth International Co., an Australian multinational company, forecasts 64 million Australian dollars (A$) earnings next three years. It expects 54 million Chinese yuan (CNY), 45 million Indian rupees (INR) and 36 million Malaysian ringgit (MYR) proceeds of its three subsidiaries in year-one. It also forecasts the year-one exchange rates A$0.2919/CNY, A$0.0495/INR and A$0.5365/MYR.
Calculate the total Australian dollar (A$) cash flow for year-one.
b. Perth International anticipates a 5.54 per cent increase in the year-one income of its subsidiaries in year-two. It has information that the current 4.16 per cent, 7.54 per cent, 13.32 per cent and 10.47 per cent nominal interest rate in Australia, China, India and Malaysia, respectively, will remain the same in the next three years. Due to foreign currency higher nominal interest rate, subsidiaries will invest 25 per cent, 51 per cent and 44 per cent of their year-two earnings in China, India and Malaysia, respectively, for next year. Subsidiaries will remit their remaining incomes (i.e., after investment) to the Australian parent. Perth International believes in the Purchasing Power Parity with considering a 2.98 per cent real interest in Australia, China, India and Malaysia to calculate the expected foreign currency value against the Australian dollar for year-two based on the year-one exchange rates A$/CNY, A$/INR, and A$/MYR.
What is the total Australian dollar (A$) cash flow for year-two?
c. In year-three, Perth International has a plan to expand the business in China, India and Malaysia. Consequently, it forecasts an 8.68 per cent increase in year-one earnings of its subsidiaries in year-three. Perth International anticipates 3.6 per cent, 7.88 per cent, 11.97 per cent and 9.72 per nominal interest rate in Australia, China, Indian and Malaysia, respectively, in year-three. It considers the International Fisher Effects to calculate the value of CNY, INR and MYR against the Australian dollar in year-three using the year-two exchange rates A$/CNY, A$/INR, and A$/MYR.
What is the total Australian dollar (A$) cash flow for year-three?
d. The subsidiaries of Perth International remit their earnings and investment proceeds to the Australian parent at the end of each year. The annual weighted average cost of capital or required rate of return of Perth International is 6.19 per cent.
Calculate the current value of the Perth International Co. using its expected cash flows in year-one, year-two and year-three.
Please help me to solve the problem a to d, thank you.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started