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Is the valuation of the total cash flows more uncertain

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Carlisle Co. is a U.S. firm that is about to purchase a large company in Switzerland at a purchase price of $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 its excess cash flows due 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 very reputable and there would be no exposure to country risk when using either 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.

Reference no: EM131117036

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