35. Valuation of an MNC. Odessa Co., Midland Co., and Roswell Co. are U.S.

firms in the same

industry and have the same valuation as of yesterday, based on the present value of future
cash flows of each company. Odessa Co. obtains a large amount of its supplies invoiced in
euros from European countries, and all of its sales are invoiced in dollars. Midland has a large
subsidiary in Europe that does all of its business in euros and remits profits to the U.S. parent
every year. Roswell Co. has no international business. Suppose an event occurs that you
believe will cause a substantial depreciation of the euro against the dollar over time, but
assume this event will not change the business operations of the firms mentioned. Which firm
will have the highest valuation based on your expectations? Briefly explain.
ANSWER
Odessa Co. will have the highest valuation because it benefits from the expected depreciation
over time. Midland would be adversely affected by the euro's depreciation.