Valuation of cash flows and purchase price of equipment

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Valuation of cash flows and purchase price of equipment with changes in the exchange rates

A US domiciled MNC is considering an acquisition in the UK. The target company will be sold at the end of three years for £100,000,000. The spot rate is $1.51/£. The cash flows (excluding the estimated sale price at year 3) and expected exchange rates are given in the following table. What is the break-even purchase price if the US MNC\'s required rate of return is 12%? (5 points)

	Period 1	Period 2	Period 3

Cash Flow in £	450,000	810,000	900,000
Expected F/X ($/£)	1.54	1.47	1.55

Reference no: EM1316970

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