Ginvold Co

question 37

Essay

Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2021 by acquiring all of the common stock for §50,000 Stickles, the local currency. This subsidiary immediately borrowed §120,000 on a five-year note with ten percent interest payable annually beginning on January 1, 2022. A building was then purchased for §170,000 on January 1, 2021. This property had a ten-year anticipated life and no salvage value and was to be depreciated using the straight-line method. The building was immediately rented for three years to a group of local doctors for §6,000 per month. By year-end, payments totaling §60,000 had been received. On October 1, §5,000 were paid for a repair made on that date and it was the only transaction of this kind for the year. A cash dividend of §6,000 was transferred back to Ginvold on December 31, 2021. The functional currency for the subsidiary was the Stickle (§). Currency exchange rates were as follows: Prepare a balance sheet for this subsidiary in stickles and then translate the amounts into U.S. dollars.

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Definitions:

Capital Rationing

A strategy or decision-making process that involves allocating and limiting investment funds to various projects to maximize a company's value.

Annuity

A financial product that pays out a fixed stream of payments to an individual, primarily used as an income stream for retirees.

Internal Rate of Return Method

A financial analysis tool used to evaluate the profitability of investments. It is the rate of return at which the net present value of all cash flows (positive and negative) from a project or investment equals zero.

Capital Investment Analysis

The process of evaluating and selecting long-term investments that are in line with the goal of investors' wealth maximization.