# Valuation Model for a MNC - PowerPoint PPT Presentation

1 / 6

Valuation Model for a MNC. Valuation Model for a MNC. where E ( CF \$, t ) represents expected cash flows to be received at the end of period t, n represents the number of periods into the future in which cash flows are received, and k represents the required rate of return by investors.

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.

Valuation Model for a MNC

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

## Valuation Model for a MNC

### Valuation Model for a MNC

• where E(CF\$,t) represents expected cash flows to be received at the end of period t,

• n represents the number of periods into the future in which cash flows are received, and

• k represents the required rate of return by investors.

### Measuring MNC International Cash Flows

• where CFj,t represents the amount of cash flow denominated in a particular foreign currency j at the end of period t,

• Sj,t represents the exchange rate at which the foreign currency (measured in dollars per unit of the foreign currency) can be converted

to dollars at the end of period t.

### Changes in the Value of a MNC

• Changes in foreign market conditions = impact on foreign currency earnings and thus on foreign currency cash flows.

• Changes in political risk (policy of foreign government towards MNC) = impact on foreign currency earnings and thus on foreign currency cash flows.

• Changes in the MNC’s cost of capital (required return)

• Changes in the exchange rate:

• Stronger foreign currency will increase U.S. dollar equivalent of cash flows.

• Weaker foreign currency will decrease U.S. dollar equivalent of cash flows.

### But Why do Domestic Firms Pursue International Business Activities

2. Imperfect Markets Theory

3. Product Cycle Theory