Beaver! is a large Canadian fashion shop with operations abroad. Beaver! has formed a joint venture with a UK firm. Beaver! expects to receive cash dividends from the joint venture over the next four years. The first dividend will be paid one year later with an amount of £50,000 and with a 10% annual growth rate. Assuming the current CAD/GBP exchange rate is 1.58CAD/GBP, and Beaver! Has a WACC of 11%, answering the following questions.
a. What is the present value of the expected dividend stream in CAD if the pound is expected to appreciate 3% a year against Canadian dollar?
b. What is the present value of the expected dividend stream if the pound is expected to depreciate 4% a year against Canadian dollar?
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