A Multinational Established a Division in a South American Country

question 35

Essay

A multinational established a division in a South American country as a subsidiary corporation, with an initial investment in total assets of 13 million CU's (the local currency is CU's), which cost the company $3,250,000 Canadian at the time. The company sent an experienced manager to run the division, and gave her a target of 13% required rate of return, promising a bonus if this was met and/or exceeded.
After one year, the subsidiary manager was pleased to report a 20% ROI.
You have been able to determine the following data pertaining to the subsidiary:
• Exchange rate at end of year was 8 CU's to 1 Cdn dollar
• Operating income was earned evenly throughout the year
• The exchange rate changed approximately evenly throughout the year
Required:
a. Calculate the subsidiary's income in CU's.
b. Calculate the subsidiary's ROI in Canadian dollars.
c. Calculate the subsidiary's RI in Canadian dollars.

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Definitions:

Climax Community

In ecology, community that results when succession has come to an end.

Rainfall

The total amount of precipitation, including rain, snow, sleet, or hail, that falls to the ground.

Ecologist

A scientist who studies the relationships between living organisms and their environment.

Adapted

The process through which an organism becomes better suited to its environment, often through genetic changes or behavioral shifts over generations.