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problem: A United State domiciled MNC is considering an acquisition in the United Kingdom. The target company will be sold at the end of three years for £100,000,000. The spot value is $1.51per £. The cash flows [excluding the estimated sale rate at year 3] & expected exchange rates are given in the following table. Determine the break-even purchase rate if the US MNC's required rate of return is 12 percent?

 

Period 1

Period 2

Period 3

 

 

 

 

Cash Flow in £

450,000

810,000

900,000

Expected F/X ($/£)

1.54

1.47

1.55

 

 

 

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M919720

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