A US Firm Acquires a British Firm That Will Generate Cash

question 75

Multiple Choice

A U.S. firm acquires a British firm that will generate cash flows of 30,000 pounds next year and these cash flows will grow at 3% a year. If the British WACC is 9% and the spot exchange rate is $1.7/pound, what is the present value (PV) of the cash flows from this acquisition to domestic shareholders?

• A) $820,000
• B) $850,000
• C) $870,000
• D) $890,000

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Definitions:

P-value

The probability of finding the observed, or more extreme, results when the null hypothesis of a study question is true.

Null Hypothesis

A hypothesis used in statistical testing that assumes there is no significant difference or effect, serving as the premise to be tested against the alternative hypothesis.

Null Hypothesis

A statement used in hypothesis testing that assumes there is no significant difference or effect and that any observation is due to chance.

Alternative Hypothesis

A theory that proposes there is a statistically significant relationship between two variables, contrasting the null hypothesis.