Question
Hello, I am struggling with problem and i cannot seem to figure out where i am going wrong. Chapman, Inc.'s Mexican subsidiary, V. Gomez Corporation,
Hello, I am struggling with problem and i cannot seem to figure out where i am going wrong.
Chapman, Inc.'s Mexican subsidiary, V. Gomez Corporation, is expected to pay to Chapman 50 pesos in dividends in 1 year after all foreign and U.S. taxes have been subtracted. The exchange rate in 1 year is expected to be $0.10 per peso. After this, the peso is expected to depreciate against the dollar at a rate of 4% a year forever due to the different inflation rates in the United States and Mexico. The peso-denominated dividend is expected to grow at a rate of 5% a year indefinitely. Chapman owns 10 million shares of V. Gomez. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below.
below is my spreadsheet in and image.
Foreign Investment Analysis 50 pesos Year 1 dividends, D. 1-year forward exchange rate, U.S. dollars required to buy 1 peso Annual depreciation rate of peso against dollar Peso-denominated dividend annual growth rate Number of common shares owned Cost of equity, rs $0.10 4.00% 5.00% 10,000,000 13.00% Step 1: Convert Pesos to Dollars Year 1 dividends in dollars, D Formulas $5.000 =B3%B4 Step 2: Find the Growth Rate in Dollar- Denominated Divdiends: Growth in exchange rate Growth rate in dollar-denominated dividends 9.62% = 1/((1/B4)*(1+B5)) 0.96% =(1+B6/(1+B5)-1 Step 3: Calculate the Per-Share Stock Price in Dollars: P. $147.727 =B11/(B8-B14) Step 4: Calculate the Dollar Value of the Equity Investment: Value of equity investment, in dollars $1,477,272,727 =B7%B18
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