Question: You work for a U.S.-based firm that has a subsidiary in Australia. The subsidiary generates substantial earnings in Australian dollars (AUD) every year. One week
You work for a U.S.-based firm that has a subsidiary in Australia. The subsidiary generates substantial earnings in Australian dollars (AUD) every year. One week ago, your firm received an offer (in USD) for the subsidiary from a company to purchase it (in USD). Your firm has not yet responded to this offer. Since last week, the expected stream of AUD flows has not changed, but the long-term interest rate in the U.S. has increased. Will the NPV of the divestiture be larger, smaller or the same as it was last week? Briefly explain (in one or two sentences at most).
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