19. Valuation of an MNC. Birm Co.

, based in Alabama, is considering several international

opportunities in Europe that could affect the value of its firm. The valuation of its firm is
dependent on four factors: (1) expected cash flows in dollars, (2) expected cash flows in
euros that are ultimately converted into dollars, (3) the rate at which it can convert euros to
dollars, and (4) Birms weighted average cost of capital. For each opportunity, identify the
factors that would be affected.
a. Birm plans a licensing deal in which it will sell technology to a firm in Germany for
$3,000,000; the payment is invoiced in dollars, and this project has the same risk level as
its existing businesses.
b. Birm plans to acquire a large firm in Portugal that is riskier than its existing businesses.
c. Birm plans to discontinue its relationship with a U.S. supplier so that can import a small
amount of supplies (denominated in euros) at a lower cost from a Belgian supplier.
d. Birm plans to export a small amount of materials to Ireland that are denominated in
euros.
ANSWER:

Opportunity

Dollar CF

a. joint venture

Euro CF

b. acquisition

c. imported supplies

d. exports to Ireland

Exchange rate at
which Birm Co.
converts euros to
dollars

Birms weighted
average cost of
capital