Question

Q1. Perth International Co., an Australian multinational company, forecasts 68 million Australian dollars (A$) earnings next year (i.e., year-one). It expects 58 million Chinese yuan (CNY), 42 million Indian rupees (INR) and 40 million Malaysian ringgit (MYR) proceeds of its three subsidiaries in year-one. It also forecasts the year-one exchange rates A$0.3568/CNY, A$0.0413/INR and A$0.6574/MYR.

Calculate the total Australian dollar (A$) cash flow for year-one. (enter the whole number with no sign or symbol)

Q2. Perth International anticipates a 5.46 per cent increase in the year-one income of its subsidiaries in year-two. It has information that the current 5.44 per cent, 7.75 per cent, 13.08 per cent and 10.43 per cent nominal interest rate in Australia, China, India and Malaysia, respectively, will remain the same in the next three years. Due to foreign currency higher nominal interest rate, subsidiaries will invest 26 per cent, 51 per cent and 39 per cent of their year-two earnings in China, India and Malaysia, respectively, for next year. Subsidiaries will remit their remaining incomes (i.e., after investment) to the Australian parent. Perth International believes in the Purchasing Power parity with considering a 2.11 per cent real interest in Australia, China, India and Malaysia to calculate the expected foreign currency value against the Australian dollar for year-two based on the year-one exchange rates A$/CNY, A$/INR, and A$/MYR.

What is the total Australian dollar (A$) cash flow for year-two? (enter the whole number with no sign or symbol)

Q3. In year-three, Perth International has a plan to expand the business in China, India and Malaysia. Consequently, it forecasts an 8.32 per cent increase in year-one earnings of its subsidiaries in year-three. Perth International anticipates 3.08 per cent, 7.06 per cent, 11.36 per cent and 9.22 per cent inflation in Australia, China, Indian and Malaysia, respectively, in year-three. It considers the Purchasing power parity to calculate the value of CNY, INR and MYR against the Australian dollar in year-three using the year-two exchange rates A$/CNY, A$/INR, and A$/MYR.

Note that investment of subsidiaries in year-two will be matured in this year and include these investment proceeds to the year-three cash flow. It means each subsidiary’s year-three cashflow is year-three earnings and year-two investment proceeds.

What is the total Australian dollar (A$) cash flow for year-three? (enter the whole number with no sign or symbol)

Q4. The subsidiaries of Perth International remit their earnings and investment proceeds to the Australian parent at the end of each year. The annual weighted average cost of capital or required rate of return of Perth International is 6.07 per cent.

Calculate the current value of the Perth International Co. using its expected cash flows in year-one, year-two and year-three. (enter the whole number with no sign or symbol).

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(Please post ALL 4 answers with working on paper clearly written.)

Answer 1

Perth Internatioanl Co forecast 68 million Australian dollars earning next year.

Company has three subsidiary company.

1^St subsidiary expect to earn 58 Chinese yuan(CNY).

Expected exchange rate in year 1 for CNY will be A $0.3568/CNY

So Amount receivable in Australian Dollar = Exchange rate i.e.A$/CNY *CNY receivable

                                                                           = 0.3568*58 i.e. A$20.6944 million

2^nd subsidiary expect to earn 42 Indian Rupee(INR).

Expected exchange rate in year 1 for INR will be A $0.0413/INR

So Amount receivable in Australian Dollar = Exchange rate i.e.A$/INR*INR receivable

                                                                           = 0.0413*42 i.e. A$1.7346 million

3rd subsidiary expect to earn 40Malaysian ringgit(MYR).

Expected exchange rate in year 1 for MYR will be A $0.6575/MYR

So Amount receivable in Australian Dollar = Exchange rate i.e.A$/MYR*MYR receivable

                                                                           = 0.6574*40 i.e. A$26.296 million

Total Australian dollar receivable in year one =68 +20.6944+1.7346+26.296

                                                                                  = 116.725 million