A Multinational Established a Division in a South American Country

question 94

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 return on investment in Canadian dollars.
c.Calculate the subsidiary's residual income in Canadian dollars.

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