Imagine a small consulting firm located in southwestern Ontario in Canada, very close to the Canada-US border. The company has a number of clients in the United States and has been considering establishing a small subsidiary there. The president believes that an office in the United States would be profitable, but the company has a policy of allocating no more than 25 percent of its expansion budget to one country. This policy is based on the belief theat expansion should not be tied to only one location. The company has an expansion budget of approximately C$500,000. The firm has assessed the needed investment in a U. S. subsidiary to be approximately US $150,000.
1. If Can$1 is worth US$0.80, will the Canadian company invest in the United States? If the value changes to US$0.85, will the company invest?
2. At what exchange rate will the company's decision change from "invest" to "don't invest"?
3. At today's exchange rate, what decision would the company make? [include which day you considered 'today', and the relevant exchange rate]