Hydrotech Manufacturing of Houston Texas expects to receive dividends each year from a foreign subsidiary for the next 5 years. The dividend is expected to grow at a rate of 7% per year. If the euro depreciates in value against the dollar at a rate of 2% per year over the life of the dividends, then the present value of the euro dividends to Hydrotech will be ________ if there had been no change in the relative values of the euro and dollar.

Question

Quizplus · Accepted Answer

The depreciation of the euro would mean that each euro received as a dividend would be worth less in terms of dollars. Therefore, the present value of the dividends in dollars would be lower than if there had been no change in the exchange rate.

Hydrotech Manufacturing of Houston Texas Expects to Receive Dividends Each