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  • QA-34. Uncertainty Surrounding An MNC's Cash Flows

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    Bangor Co. expects $900,000 in domestic cash inflows, 200,000 Swiss franc inflows worth an estimated $220,000, and 500,000 Swiss franc outflows worth $550,000, for total expected cash flows of $570,000. Concord Co. expects $900,000 domestic inflows, 700,000 franc inflows worth $770,000, and 800,000 franc outflows worth $880,000, for total cash flows of $790,000. The cash flows of Bangor Co. are more uncertain as a larger proportion is subject to exchange rate risk.

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    QA-34. Uncertainty Surrounding an MNC's Cash Flows

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    QA-34. Uncertainty Surrounding an MNC's Cash Flows

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    Bangor Co. expects $900,000 in domestic cash inflows, 200,000 Swiss franc inflows worth an estimated $220,000, and 500,000 Swiss franc outflows worth $550,000, for total expected cash flows of $570,000. Concord Co. expects $900,000 domestic inflows, 700,000 franc inflows worth $770,000, and 800,000 franc outflows worth $880,000, for total cash flows of $790,000. The cash flows of Bangor Co. are more uncertain as a larger proportion is subject to exchange rate risk.

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    917 vues1 page

    QA-34. Uncertainty Surrounding An MNC's Cash Flows

    Transféré par

    hy_saingheng_7602609
    Bangor Co. expects $900,000 in domestic cash inflows, 200,000 Swiss franc inflows worth an estimated $220,000, and 500,000 Swiss franc outflows worth $550,000, for total expected cash flows of $570,000. Concord Co. expects $900,000 domestic inflows, 700,000 franc inflows worth $770,000, and 800,000 franc outflows worth $880,000, for total cash flows of $790,000. The cash flows of Bangor Co. are more uncertain as a larger proportion is subject to exchange rate risk.

    Droits d'auteur :

    © All Rights Reserved
    Téléchargez comme DOCX, PDF, TXT ou lisez en ligne sur Scribd
    Signaler comme contenu inapproprié
    sur 1

    34. Uncertainty Surrounding an MNC's Cash Flows.

    a. Assume that Bangor Co. (a U.S. firm) knows that it will have cash inflows of $900,000
    from domestic operations, cash inflows of 200,000 Swiss francs resulting from exports to
    Swiss operations, and cash outflows of 500,000 Swiss francs at the end of the year. Although
    the future value of the Swiss franc is uncertain, your best guess is that it will be worth $1.10
    at the end of this year. What are the expected dollar cash flows of Bangor Co?
    b. Assume that Concord Co. (a U.S. firm) is in the same industry as Bangor Co. There is no
    political risk that could have any impact on the cash flows of either firm. Concord Co. knows
    that it will have cash inflows of $900,000 from domestic operations, cash inflows of 700,000
    Swiss francs from exports to Swiss operations, and cash outflows of 800,000 Swiss francs at
    the end of the year. Is the valuation of the total cash flows of Concord Co. more uncertain or
    less uncertain than the total cash flows of Bangor Co.? Explain briefly.
    ANSWER
    a. $900,000 + (-$300,000 x $1.10) = $570,000
    b. The cash flows of Bangor are more uncertain because a larger proportion of the cash flows
    are subject to exchange rate risk.

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