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    QA-24. Uncertainty Surrounding An MNC's Valuation

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    Carlisle Co. is purchasing a large furniture company in Switzerland for $20 million. The Swiss company earns large profits annually and will remit excess cash flows to Carlisle. Carlisle can obtain supplies from a U.S. or Swiss supplier. The valuation of Carlisle's total cash flows is more uncertain if it obtains supplies from the U.S. firm because it will have larger cash flows remitted from Switzerland and converted to dollars, exposing it more to currency exchange rate fluctuations.

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    QA-24. Uncertainty Surrounding An MNC's Valuation

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    hy_saingheng_7602609
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    Carlisle Co. is purchasing a large furniture company in Switzerland for $20 million. The Swiss company earns large profits annually and will remit excess cash flows to Carlisle. Carlisle can obtain supplies from a U.S. or Swiss supplier. The valuation of Carlisle's total cash flows is more uncertain if it obtains supplies from the U.S. firm because it will have larger cash flows remitted from Switzerland and converted to dollars, exposing it more to currency exchange rate fluctuations.

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    QA-24. Uncertainty Surrounding an MNC’s Valuation

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    QA-24. Uncertainty Surrounding an MNC’s Valuation

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    Carlisle Co. is purchasing a large furniture company in Switzerland for $20 million. The Swiss company earns large profits annually and will remit excess cash flows to Carlisle. Carlisle can obtain supplies from a U.S. or Swiss supplier. The valuation of Carlisle's total cash flows is more uncertain if it obtains supplies from the U.S. firm because it will have larger cash flows remitted from Switzerland and converted to dollars, exposing it more to currency exchange rate fluctuations.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    864 views1 page

    QA-24. Uncertainty Surrounding An MNC's Valuation

    Uploaded by

    hy_saingheng_7602609
    Carlisle Co. is purchasing a large furniture company in Switzerland for $20 million. The Swiss company earns large profits annually and will remit excess cash flows to Carlisle. Carlisle can obtain supplies from a U.S. or Swiss supplier. The valuation of Carlisle's total cash flows is more uncertain if it obtains supplies from the U.S. firm because it will have larger cash flows remitted from Switzerland and converted to dollars, exposing it more to currency exchange rate fluctuations.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    24. Uncertainty Surrounding an MNCs Valuation. Carlisle Co. is a U.S.

    firm that is about to


    purchase a large company in Switzerland for $20 million. This company produces furniture
    and sells it locally (in Switzerland), and it is expected to earn large profits every year. The
    company will become a subsidiary of Carlisle and will periodically remit the excess cash
    flows from to its profits to Carlisle Co. Assume that Carlisle Co. has no other international
    business. Carlisle has $10 million that it will use to pay for part of the Swiss company and
    will finance the rest of its purchase with borrowed dollars. Carlisle Co. can obtain supplies
    from either a U.S. supplier or a Swiss supplier (in which case the payment would be made in
    Swiss francs). Both suppliers are reputable and there would be no exposure to country risk
    when using one supplier. Is the valuation of the total cash flows of Carlisle Co. more
    uncertain if it obtains its supplies from a U.S. firm or a Swiss firm? Explain briefly.
    ANSWER: The valuation of Carlisle Co. is more uncertain if it uses a U.S. supplier because
    it will have a larger amount of cash flows that will be remitted from Switzerland and
    converted into dollars. If it obtains supplies from Switzerland, it can use a portion of its Swiss
    franc cash flows to cover the cost, and will convert a smaller amount of francs into dollars on
    a periodic basis. Thus, it is less exposed when sourcing from Switzerland.

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