After all foreign and U.S. taxes, a U.S. corporation expects toreceive 2 pounds of dividends per share from a British subsidiarythis year. The exchange rate at the end of the year is expected tobe $1.29 per pound, and the pound is expected to depreciate 5%against the dollar each year for an indefinite period. The dividend(in pounds) is expected to grow at 10% a year indefinitely. Theparent U.S. corporation owns 10 million shares of the subsidiary.What is the present value in dollars of its equity ownership of thesubsidiary? Assume a cost of equity capital of 11% for thesubsidiary.
