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#135948
Present value of equity ownership of the subsidiary: What is the present value in dollars of its equity ownership of the subsidiary? Assume a cost of equity capital of 15 percent for the subsidiary.
After all foreign and U.S. taxes, a U.S. corporation expects to receive 3 pounds of dividends per share from a British subsidiary's this year. The exchange rate at the end of the year is expected to be $1.60 per pound, and the pound is expected to depreciate 5 percent against the dollar each year for an indefinite period. The dividend (in pounds) is expected to grow at 10 percent a year indefinitely. The parent U.S. corporation owns 10 million shares of the subsidiary.
a. What is the present value in dollars of its equity ownership of the subsidiary? Assume a cost of equity capital of 15 percent for the subsidiary.
Present value of equity ownership of the subsidiary is calculated.
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