Odessa Co., Midland Co., and Roswell Co. are U.S. firms in the same industry and have the
Question:
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 euro's 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.
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Odessa Co Odessa Co will have the highest valuation because it benefits from the expected depreci...View the full answer
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