5. Assume that it is now Jan. 2017. AZDT Inc. (US) expects to receive cash dividends...

5. Assume that it is now Jan. 2017. AZDT Inc. (US) expects to receive cash dividends from a joint venture in India over the next five years. The first dividend of Rs 2 million will be paid in Dec. 2017. The dividend is then expected to grow at an annual rate of 10% over the following four years.

Current exchange rate (Rs/$) is 45 (65.25) and AZDT’s average weighted cost of capital is 10%.

a. Compute the dollar present value of the expected rupee dividend stream if the dollar is expected to depreciate by 5% per year against the rupee over the investment period.

b. Obtain the dollar present value of the expected rupee dividend stream if the rupee is expected to depreciate by 10% per year against the dollar over the investment period

c. What is the dollar present value of the expected rupee dividend stream if the exchange rate remains constant over the investment period?

Expert Solution

I dont find any use of 65.25. I think it is mentioned extra(By mistake) . Thats why i considered 45/$ as rate at T_0. Please give feedback whether you like answer or not. Sorry for overwriting.

jeff jeffy answered 4 months ago

Assume that it is now Jan. 2018. AZDT Inc. (US) expects to receive cash dividends from...

Assume that it is now Jan. 2018. AZDT Inc. (US) expects to receive cash dividends from a joint venture in India over the next five years. The first dividend of Rs 2 million will be paid in Dec. 2018. The dividend is then expected to grow at an annual rate of 10% over the following four years. Current exchange rate (Rs/$) is 45 (65.25) and AZDT’s average weighted cost of capital is 10%. a. Compute the dollar present value of...

After all foreign and U.S. taxes, a U.S. corporation expects to receive 5 pounds of dividends...

After all foreign and U.S. taxes, a U.S. corporation expects to receive 5 pounds of dividends per share from a British subsidiary this year. The exchange rate at the end of the year is expected to be $1.29 per pound, and the pound is expected to depreciate 7% against the dollar each year for an indefinite period. The dividend (in pounds) is expected to grow at 12% a year indefinitely. The parent U.S. corporation owns 9 million shares of the...

STU Mobility Inc. will pay $5 per share in cash dividends one year from now, and...

STU Mobility Inc. will pay $5 per share in cash dividends one year from now, and a liquidating dividend of $80 per share two years from now. The required return on similar common stocks is 15%. If you own 1,000 shares of the 100,000 total shares outstanding in STU, but you want to have constant dividend payout in the next two years, how much homemade dividends can you get in each year? Select one: a. $36,962.26 b. $37,028.37 c. $38,295.54...

Assume that Pomo Limited, a US based firm, expects to receive S$800,000 in one year. The...

Assume that Pomo Limited, a US based firm, expects to receive S$800,000 in one year. The existing spot rate of the Singapore dollar is US$0.74. The one-year forward rate of the Singapore dollar is US$0.76. Pomo created a probability distribution for the future spot rate in one year as follows: Future Spot | Rate Probability US$0.75 | 20% US$0.77 | 50% US$0.81 | 30% Assume that one-year put options on Singapore dollars are available, with an exercise price of US$0.77...

3. XYZ Inc. a US based company expects to receive 10 million euros in each of...

3. XYZ Inc. a US based company expects to receive 10 million euros in each of the next 10 years. At the same time the company needs to obtain 2 million Mexican pesos in each of the next 10 years. The euro exchange rate is presently valued at $1.48 and is expected to depreciate by 3 percent each year over time. The peso is valued at $0.11 and is expected to depreciate by 2.5 percent each year over time. Do...

Assume two identical (hypothetical) company's, CAP inc. and NOW inc. (NOW), start with 1,000 cash and...

Assume two identical (hypothetical) company's, CAP inc. and NOW inc. (NOW), start with 1,000 cash and 1,000 common stock. Each year the companies recognize total revenues of 1500 cash and make cash expenditures of 500 (excluding an equipment purchase). At the beginning of operations, each company pays 900 to purchase equipment. CAP estimates the equipment will have a useful life of three years and an estimated salvage value of 0 at the end of the three years. Now estimates a...

1) IBM expects to pay a dividend of $5 next year and expects these dividends to...

1) IBM expects to pay a dividend of $5 next year and expects these dividends to grow at 77% a year. The price of IBM is $85 per share. What is IBM's cost of equity capital? 2) Since your first birthday, your grandparents have been depositing $1,200into a savings account on every one of your birthdays. The account pays 9% interest annually. Immediately after your grandparents make the deposit on your 18th birthday, the amount of money in your savings...

Assume that a US based firm, Florida Inc. expects to pay CAD 900,000 in one year....

Assume that a US based firm, Florida Inc. expects to pay CAD 900,000 in one year. The existing spot rate is 1 CAD = 0.76 USD. The one year forward rate of the CAD is USD 0.79. Florida created a probability distribution for the future spot rate of CAD in one year as follows: Future Spot Rate Probability USD 0.75 20% USD 0.78 50% USD 0.81 30% Assume one year put options on CAD with an exercise price of USD 0.81 and a premium...

If you were an individual, would you prefer to receive cash dividends, stock dividends, or stock...

If you were an individual, would you prefer to receive cash dividends, stock dividends, or stock split? Describe why and the benefits to support your decision.

After all foreign and U.S. taxes, a U.S. corporation expects to receive 3 pounds of dividends...

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 $1.33 per pound, and the pound is expected to depreciate 3% 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 9 million shares of the...

Question