Someone please help me with my International Finance question (1 Viewer)

[_simmi_]

Hi,

I'm new to this thing so I'm not sure if I'm posting this in the right section. Anyway, I'm having trouble with one of my homework questions for International Finance and I hear you guys are pretty smart. If you could post working and explanation, that would be swell. Here's the question:


Belmont Pty Ltd expects to receive cash dividends from a French joint venture over the coming three years. The first dividend, to be paid 31 December 2004, is expected to be €720,000. The dividend is then expected to grow 10.0% per year over the following two years. The current exchange rate (30 December 2003) is A$1.25/€. Belmont’s weighted average cost of capital is 12%.

a) What is the present value of the expected euro dividend stream if the euro is expected to appreciate 4.00% per annum against the A$?

b) What is the present value of the expected dividend stream if the euro were to depreciate 3.00% per annum against the A$?


Thanks!

 

[seremify007]

Sorry for slow reply but I'm too lazy to do it (but it doesn't look too bad). That being said I can give you some tips.

1. It's only for 3 years so the easiest way of doing things is to calculate what the dividends will be rather than trying to come up with a magical sequence & series formula.
2. Use Excel to keep it neat.
3. Do it in Euros first, THEN do the FX conversion.
4. Obviously use the WACC of 12% as your discount rate.

Hope this helps.