Fetco Co. (a U. S. firm) has a subsidiary in Germany that generates substantial earnings in euros each year. It will soon decide whether to divest the subsidiary. One week ago, a company offered to purchase the subsidiary from Fetco Co., and Fetco has not yet responded to this offer. If the long-term interest rate in the US seddenly declines and all other factors are unchanged, will the NPV of the divestiture be larger, smaller or same as last week?

Question

Fernando Terrell

Business

10 September, 01:00

Fetco Co. (a U. S. firm) has a subsidiary in Germany that generates substantial earnings in euros each year. It will soon decide whether to divest the subsidiary. One week ago, a company offered to purchase the subsidiary from Fetco Co., and Fetco has not yet responded to this offer. If the long-term interest rate in the US seddenly declines and all other factors are unchanged, will the NPV of the divestiture be larger, smaller or same as last week?

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Jamir Lynch · Answer 1

Answer and Explanation:

if the long term interest rate in the US suddenly declines and all other factor are unchanged then, Fed's estimated NPV of the divestiture will be larger than that of last week because the decline in the long term interest rate in the US and all other factors unchanged the euro's value in the future years will decrease.