Question: A United State domiciled MNC is considering an acquisition in the United Kingdom. The target company will be sold at the end of three years for £100,000,000. The spot value is $1.51per £. The cash flows [excluding the estimated sale rate at year 3] & expected exchange rates are given in the following table. Determine the break-even purchase rate if the US MNC's required rate of return is 12 percent?
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Period 1
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Period 2
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Period 3
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Cash Flow in £
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450,000
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810,000
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900,000
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Expected F/X ($/£)
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1.54
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1.47
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1.55
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