San Gabriel Corp. recently considered buying an Italian company and making it a foreign subsidiary of San Gabriel. Using
Posted: Tue Nov 16, 2021 8:36 am
San Gabriel Corp. recently considered buying an Italian company
and making it a foreign subsidiary of San Gabriel. Using a 17%
required rate of return, San Gabriel concluded that the decision
was a close call, but its evaluation of the purchase of the Italian
company just barely failed the NPV test. In the last week, San
Gabriel’s required return on that subsidiary increased to 21
percent. If the purchase price for the Italian company has not
changed, is the project now more likely or less likely to pass the
NPV test? Briefly explain your response.
and making it a foreign subsidiary of San Gabriel. Using a 17%
required rate of return, San Gabriel concluded that the decision
was a close call, but its evaluation of the purchase of the Italian
company just barely failed the NPV test. In the last week, San
Gabriel’s required return on that subsidiary increased to 21
percent. If the purchase price for the Italian company has not
changed, is the project now more likely or less likely to pass the
NPV test? Briefly explain your response.