Question
Texas Co. (TC) established a subsidiary in Russia two years ago. Under its original plans, TC intended to operate the subsidiary for a total of
Texas Co. (TC) established a subsidiary in Russia two years ago. Under its original plans, TC intended to operate the subsidiary for a total of four years. Exchange forecasts suggest the ruble will likely depreciated from the current level of $0.033 to $0.028 to $0.025 over the next few years.TC could sell the subsidiary today for 5 million rubles to a potential acquirer. If TC continues to operate the subsidiary, it will generate cash flows of 3.5 million rubles next year and 4.5 million rubles in the following year. These cash flows would be remitted back to the parent in the U.S. The required rate of return of the project is 15 percent. Should TC continue operating the Russian subsidiary?
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