A US Firm Acquires a British Firm That Will Generate Cash

question 29

Multiple Choice

A U.S. firm acquires a British firm that will generate cash flows of 20,000 pounds next year and these cash flows will grow at 4% a year. If the British WACC is 9% and the spot exchange rate is $1.8/pound, what is the present value (PV) of the cash flows from this acquisition to domestic shareholders?

• A) $633,333
• B) $654,876
• C) $691,543
• D) $720,000

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Definitions:

Externalities

Economic side effects or consequences that affect uninvolved third parties; can be positive or negative.

Public Goods

Goods that are non-excludable and non-rivalrous, meaning they can be used by everyone and one person's use does not reduce availability to others, such as clean air.

Marginal Social Cost

The total cost to society of producing an additional unit of a good or service, including both private costs and any external costs.

Unregulated Level

Typically refers to a state in which market activities or specific industries operate without government-imposed controls or restrictions.