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Carlisle Co$.$ is a U$.$S$.$ firm that is about to purchase a large company in Switzerland at a purchase price of $$20$ million. This company produces furniture and sells it locally $($in Switzerland$),$ and is expected to earn large profits every year. The company will become a subsidiary of Carlisle and will periodically remit its excess cash flows due to its profits to Carlisle Co$.$ Assume that Carlisle Co$.$ has no other international business. Carlisle has $$10$ million that it will use to pay for part of the Swiss company and will finance the rest of its purchase with borrowed dollars. Carlisle Co$.$ can obtain supplies from either a U$.$S$.$ supplier or a Swiss supplier $($in which case the payment would be made in Swiss francs$).$ Both suppliers are very reputable and there would be no exposure to country risk when using either supplier. Is the valuation of the total cash flows of Carlisle Co$.$ more uncertain if it obtains its supplies from a U$.$S$.$ firm or a Swiss firm? Explain briefly.

The valuation of Carlisle Co$.$ is more uncertain if it uses a Swiss supplier because it will have a larger amount of cash flows that will be converted into francs to cover the cost compared to the situation of obtaining its supplies from a U$.$S$.$ firm when dollars are not converted into francs at all.

The valuation of Carlisle Co$.$ is more uncertain if it uses a Swiss supplier because it will have a larger amount of cash flows that will be converted into francs to cover the cost compared to the situation of obtaining its supplies from a U$.$S$.$ firm when only a part of cash flow is remitted from Switzerland and converted into dollars.

The valuation of Carlisle Co$.$ is more uncertain if it uses a U$.$S$.$ supplier because it will have a larger amount of cash flows that will be remitted from Switzerland and converted into dollars compared to the situation of obtaining its supplies from a Swiss firm when Carlisle can use a portion of its Swiss franc cash flows to cover the cost.

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