What are typical reasons why MNCs expand internationally?
1. What are typical reasons why MNCs expand internationally?
2. Explain why unfavorable economic or political conditions affect the MNC’s cash flows, required rate of return, and valuation.
3. Identify the more obvious risks faced by MNCs that expand internationally.
4. Exposure to Exchange Rate Risk. if the foreign currencies to be received by a U.S.-based MNC suddenly weaken against the dollar, then the MNC will receive a lower amount of dollar cash flows than expected. Therefore, the MNC’s cash flows will be reduced. Recall from the previous example that Austin Co. now anticipates a European recession and so has revised its expected annual cash flows to be 16 million Euros from its European operations. The dollar cash flows that Austin will receive from these euro cash flows depend on the exchange rate at the time those euros are converted to dollars. If the exchange rate is expected to be $1.30, then What is Austin’s predicted cash flows?
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