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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