Assessing a Foreign Project. Huskie Industries, a U.S. based MNC, considers purchasing a small manufacturing company in France that sells products only within France. Huskie has no other existing business in France and no cash flows in euros. Would the proposed acquisition likely be more feasible if the euro is expected to appreciate or depreciate over the long run? Explain.
ANSWER: The proposed acquisition is likely to be more feasible if the euro is expected to appreciate over the long run. Huskie would like to purchase the firm when the euro is weak. Then, after the purchase, a strengthened euro will convert the French firm’s earnings remitted to the parent into a larger amount of U.S. dollars.