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Question 2 An American firm has the opportunity to acquire a target company in Mexico. The firm anticipates owning the subsidiary for 5 years. Is
Question
An American firm has the opportunity to acquire a target company in Mexico.
The firm anticipates owning the subsidiary for years. Is this a profitable
investment, and if so what is the projected NPVThe firm will calculate NPV in
pesos, using the required rate of return below.
Initial Outlay pesos
Cash Flow DF: pesos at the end of Year with Cash Flows
increasing each year
Required Rate of Return
Salvage Value pesos
Time at which target will be sold
In this case, assume that exchange rates will remain the same from IO until the
target is sold.
Yes. The NPV is pesos.
No The NPV is pesos.
Yes. The NPV of the target takeover is pesos.
Yes. The NPV of the target takeover is pesos.
Question
Suppose that the American firm in Question needs to convert dollars to pesos
at the beginning of the timeframe at a rate of pesos per dollar. However, the
firm expects the exchange rate to be pesos per dollar at the end of the
timeframe. The firm will calculate NPV in pesos, using the required rate of
return below, but it needs to account for the change in exchange rate which it is
anticipating. Is the target still profitable with the required rate of return? Why
or why not? Choose the best answer.
Yes. The new NPV factoring in the exchange rate at present and expected
exchange rate in years, is US Dollars.
Yes. The new NPV factoring in the exchange rate at present and expected
exchange rate in years, is US Dollars.
No We should always reject a target takeover when the foreign currency is
expected to depreciate against the dollar.
No The new NPV factoring in the exchange rate at present and expected
exchange rate in years, is US Dollars. I JUST NEED HELP WITH QUESTION # I KNOW HOW TO DO # THANK YOU
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