Question
You work for a U.S.-based firm that consists of two businesses. One of the businesses is local and is expected to generate cash flows of
You work for a U.S.-based firm that consists of two businesses. One of the businesses is local and is expected to generate cash flows of $10,000,000 at the end of each of the next 3 years (and no cash flows after that). The other is a foreign subsidiary based in Germany, whose business is selling technology in Germany. This business is expected to generate $20,000,000 in cash flows at the end of each of the next three years (and no cash flows after that). The main competitor of your German subsidiary is Better Tech, a privately-held firm that is based in Germany. Your firm is deciding whether to acquire Better Tech. If your firm does acquire Better Tech, it will merge the operations of Better Tech with your German subsidiarys business. It expects that these merged operations in Germany would generate a total of $30,000,000 in cash flows at the end of each of the next 3 years (and no cash flows after that). Better Tech is willing to be acquired for a price of 25 million euros. The euro spot rate is $1.20. The required rate of return for this project is 25%. Determine the net present value of this acquisition to determine whether your firm should acquire Better Tech.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started