Question
A U.S.-based MNC is considering a British opportunity. The size and timing of the after-tax cash flows are: Initial investment -210,000,000 Year 1 30,000,000 Year
A U.S.-based MNC is considering a British opportunity. The size and timing of the after-tax cash flows are: Initial investment -210,000,000 Year 1 30,000,000 Year 2 40,000,000 Year 3 45,000,000 Year 4 50,000,000 Year 5 50,000,000 Year 6 50,000,000 Year 7 50,000,000 The current exchange rate is $1.38/. The inflation rate in the U.K. is 4%, the inflation rate in the U.S. is 8%, and the business risk of the investment would lead an U.S.-based firm to require a return of 18%. The inflation scenario is expected to remain the same for the foreseeable future. Is this a good investment from the perspective of the U.S. shareholders?
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