Question 1

Perth International Co., an Australian multinational company, forecasts 66 million

Australian dollars (A$) earnings next year (i.e., year-one). It expects 56 million Chinese

yuan (CNY), 42 million Indian rupees (INR) and 33 million Malaysian ringgit (MYR)

proceeds of its three subsidiaries in year-one. It also forecasts the year-one exchange

rates A$0.2543/CNY, A$0.0420/INR and A$0.6944/MYR.

Calculate the total Australian dollar (A$) cash flow for year-one. (enter the whole

number with no sign or symbol)

Answer:

Question 2

Perth International anticipates a 5.05 per cent increase in the year-one income of its

subsidiaries in year-two. It has information that the current 5.63 per cent, 7.80 per cent,

13.27 per cent and 11.73 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 28 per cent, 53 per cent

and 43 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 2.27 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? (enter the whole number

with no sign or symbol)

Answer:

Question 3

In year-three, Perth International has a plan to expand the business in China, India and

Malaysia. Consequently, it forecasts an 8.19 per cent increase in year-one earnings of

its subsidiaries in year-three. Perth International anticipates 3.40 per cent, 7.92 per

cent, 11.06 per cent and 9.91 per cent inflation in Australia, China, Indian and Malaysia,

respectively, in year-three. It considers the Purchasing power parity to calculate the

value of CNY, INR and MYR against the Australian dollar in year-three using the yeartwo exchange rates A$/CNY, A$/INR, and A$/MYR.

Note that investment of subsidiaries in year-two will be matured in this year and include

these investment proceeds to the year-three cash flow. It means each subsidiary's yearthree cashflow is year-three earnings and year-two investment proceeds.

What is the total Australian dollar (A$) cash flow for year-three? (enter the whole

number with no sign or symbol)

Answer:

Question 4

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 7.54 per cent.

Calculate the current value of the Perth International Co. using its expected cash flows

in year-one, year-two and year-three. (enter the whole number with no sign or symbol).

Answer: