What is the maximum us dollar price finisterra should offer

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Question: Finisterra, S.A. Finisterra, S.A., located in the state of Baja California, Mexico, manufactures frozen Mexican food which enjoys a large following in the U.S. states of California and Arizona to the north. In order to be closer to its U.S. market, Finisterra is considering moving some of its manufacturing operations to southern California. Operations in California would begin in year 1 and have the following attributes.

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The peso/dollar exchange rate (Ps/$) is expected to be 8.00 (Year 0), 9.00 (Year 1), 10.00 (Year 2) and 11.00 (Year 3). The operations in California will pay 80% of its accounting profit to Finisterra as an annual cash dividend. Mexican taxes are calculated on grossed up dividends from foreign countries, with a credit for host-country taxes already paid. What is the maximum U.S. dollar price Finisterra should offer in year 1 for the investment?

Reference no: EM131708480

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