Question
You work for a U.S.-based firm that established a subsidiary in Morocco a number of years ago. Under the original plans, your firm intended to
You work for a U.S.-based firm that established a subsidiary in Morocco a number of years ago. Under the original plans, your firm intended to operate the subsidiary for another two years. However, you are reassessing the situation because exchange rate forecasts for the Moroccan dirham (MAD) indicate that it may depreciate from its current level of $0.10 to $0.08 next year and to $0.06 the following year. You could sell the subsidiary today for MAD50 million. If you continue to operate the subsidiary, it will generate cash flows of MAD40 million next year and MAD45 million the following year. These cash flows would be remitted back to your firm. The required rate of return for this project is 20%. Should your firm continue operating the Moroccan subsidiary?
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