Problem
Grenouille Properties. Grenouille Properties (U.S.) expects to receive cash dividends from a French joint venture over the coming three years. The first dividend, to be paid in one year, is expected to be €710,000. The dividend is then expected to grow 10.2% per year over the following two years. The current exchange rate is $1.3321/€. Grenouille's weighted average cost of capital is 12.5%.
1. What is the present value of the expected dividend stream if the euro is expected to appreciate 4.20% per annum against the dollar?
2. What is the present value of the expected dividend stream if the euro were to depreciate 3.20% per annum against the dollar?