A valuation on an agricultural company in Australia has just been performed as p

Question

A valuation on an agricultural company in Australia has just been performed as part of a bigger assignment. This is a follow up question, it needs to address foreign investment, such as change in buying power, risk etc. Mostly in terms of economics, but this is part of a finance unit.

Assuming the expected cash flows and cost of capital you use in arriving at your estimate of the maximum value of the company is accurate, do you think a foreign investor should use the same cash flows and cost of capital? Justify your answer.

Explanation / Answer

No, in international fiance same cash flows and cost of capital cannot be used as risk increase in foreign invesment and that risk premium should be adjusted in cost of capital further cash flows over different time period rquire different exchange rate between two countries

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