$2.00 Problem 17-13,After all foreign and U.S. taxes, a U.S. corporation expects to receive 3 pounds of dividendsFound in Business: Finance
Chapter 1, # 0
After all foreign and U.S. taxes, a U.S. corporation expects to receive 3 pounds of dividends per share from a British subsidiary this year. The exchange rate at the end of the year is expected to be $1.40 per pound, and the pound is expected to depreciate 4% against the dollar each year for an indefinite period. The dividend (in pounds) is expected to grow at 8% a year indefinitely. The parent U.S. corporation owns 5 million shares of the subsidiary. What is the present value in dollars of its equity ownership of the subsidiary? Assume a cost of equity capital of 14% for the subsidiary. Round your answer to the nearest dollar.
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Finance-problem 17-13.xls (26K)