a) The following cost and revenue information relates to Zobby Limited, a multinational corporation based in...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
a) The following cost and revenue information relates to Zobby Limited, a multinational corporation based in the United States (US) which purchases most of its materials from Canada and generates a small portion of its sales from exporting its products to Canada. US Business S "million" Sales Cost of materials Operating expenses Interest expenses Cash flow 2,560 400 480 24 1,656 Canadian Business S "million" 32 1,600 80 1,648 Additional information: 1. Assume that Zobby Limited expects three possible exchange rate scenarios for the Canadian dollar over the period of concern as follows: $0.75 $0.80 $0.85 2. Assume that U.S sales will be unaffected by the exchange rates 3. Assume that the Canadian dollars (C$) earnings will be remitted to the U.S parent company at the end of the period. 4. Ignore possible tax effects. Required: i. ii. Using relevant computations, assess Zobby Limited's economic exposure under the above three scenarios. Comment on the results obtained in (a) (i) above. b) Tivec Beauties, a multinational company based in Kenya is considering establishing a 4-year venture in Rwanda that would manufacture and sell shoes locally. Additional information: 1. The project would require 20 million Rwanda Francs (RWF) which would include funds to support working capital needs. 2. The spot exchange rate is Ksh.0.125/RWF which is expected to remain constant for all future periods. 3. The estimated price, variable cost and demand schedules during each of the next 4 years are as follows: Year Unit cost per shoe (RWF) Demand in Rwanda (units) Variable cost per shoe (RWF) 1 700 50,000 500 2 3 700 760 50,000 80,000 500 550 4 800 100,000 580 4. The expenses of leasing extra office space is RWF 2 million per annum. Other annual overhead expenses are expected to be RWF 2 million per annum. 5. Depreciation on plant and machinery in Rwanda has been fixed at a maximum rate of RWF 4 million per annum. 6. The Rwandan government will impose a corporate tax at a rate of 20% on income. In addition it will impose a 10% withholding tax on any funds remitted by the subsidiary to the parent. The Kenyan government will allow a tax credit on taxes paid in Rwanda, therefore, earnings remitted to the Kenyan parent will not be taxed. 7. The subsidiary plans to send all net cash flows received to the parent company at the end of each year. 8. The Rwandan government will pay the parent company RWF 12 million to take over the ownership of the subsidiary at the end of the four years. Assume that there is no capital gains tax on the sale of the subsidiary. 9. The required rate of return of the project is 14%. Required: Advise Tivec Beauties on whether to undertake the project. a) The following cost and revenue information relates to Zobby Limited, a multinational corporation based in the United States (US) which purchases most of its materials from Canada and generates a small portion of its sales from exporting its products to Canada. US Business S "million" Sales Cost of materials Operating expenses Interest expenses Cash flow 2,560 400 480 24 1,656 Canadian Business S "million" 32 1,600 80 1,648 Additional information: 1. Assume that Zobby Limited expects three possible exchange rate scenarios for the Canadian dollar over the period of concern as follows: $0.75 $0.80 $0.85 2. Assume that U.S sales will be unaffected by the exchange rates 3. Assume that the Canadian dollars (C$) earnings will be remitted to the U.S parent company at the end of the period. 4. Ignore possible tax effects. Required: i. ii. Using relevant computations, assess Zobby Limited's economic exposure under the above three scenarios. Comment on the results obtained in (a) (i) above. b) Tivec Beauties, a multinational company based in Kenya is considering establishing a 4-year venture in Rwanda that would manufacture and sell shoes locally. Additional information: 1. The project would require 20 million Rwanda Francs (RWF) which would include funds to support working capital needs. 2. The spot exchange rate is Ksh.0.125/RWF which is expected to remain constant for all future periods. 3. The estimated price, variable cost and demand schedules during each of the next 4 years are as follows: Year Unit cost per shoe (RWF) Demand in Rwanda (units) Variable cost per shoe (RWF) 1 700 50,000 500 2 3 700 760 50,000 80,000 500 550 4 800 100,000 580 4. The expenses of leasing extra office space is RWF 2 million per annum. Other annual overhead expenses are expected to be RWF 2 million per annum. 5. Depreciation on plant and machinery in Rwanda has been fixed at a maximum rate of RWF 4 million per annum. 6. The Rwandan government will impose a corporate tax at a rate of 20% on income. In addition it will impose a 10% withholding tax on any funds remitted by the subsidiary to the parent. The Kenyan government will allow a tax credit on taxes paid in Rwanda, therefore, earnings remitted to the Kenyan parent will not be taxed. 7. The subsidiary plans to send all net cash flows received to the parent company at the end of each year. 8. The Rwandan government will pay the parent company RWF 12 million to take over the ownership of the subsidiary at the end of the four years. Assume that there is no capital gains tax on the sale of the subsidiary. 9. The required rate of return of the project is 14%. Required: Advise Tivec Beauties on whether to undertake the project.
Expert Answer:
Answer rating: 100% (QA)
Answer a The following cost and revenue information relates to Zobby Limited a multinational corporation based in the United States US which purchases most of its materials from Canada and generates a ... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
Wallerton, Inc., is a U.S. company that has business operations in Canada. Wallertons Canadian operation exports the majority of its output to customers in the U.S. and sells only a small portion of...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Jelton, Inc., is a U.S. company that has some business operations in Canada. The Canadian operation exports most of its output to the U.S., but incurs most of its costs in Canadian dollars. The...
-
Each table of values gives several points that lie on a line.(a) What is the x-intercept of the line? The y-intercept?(b) Which equation in choices AD corresponds to the given table of values?(c)...
-
Dynasol is in a rapidly growing and highly competitive field of Solar Water Heating. It needs a forecast for based on their sales history and on the total solar heating market sales history The...
-
Create a factual scenario where the bailees duty of care is ordinary care.
-
Identify the reconciliations which a company must include in its financial statements when it adopts IFRS for the first time.
-
1. What environmental factors could Bill Strickland have changed in his life? 2. What moral authority does Bill Strickland speak from to struggling college students? 3. What impact did Stricklands...
-
6) Justify If you know the perimeter of a square, you can find the area of the square in two steps. Describe the two steps.
-
The sales manager for a publisher of college textbooks has six traveling salespeople to assign to three different regions of the country. She has decided that each region should be assigned at least...
-
Your CEO likes the idea of granting performance-based stock options, but she wants to include individual employee performance criteria in your plan. What problems might this cause and how would you...
-
On September 31, 20X1, White & Co., CPAs, was engaged to audit the consolidated financial statements of National Motors, Inc., for the year ended December 31, 20X1. The prior year con solidated...
-
Jared worked for Darwin Chemical Company (DCC) for four years. DCC is a multinational corporation with subsidiaries in eight countries. About six months ago Jared was offered a job as a plant manager...
-
What conditions provide the primary reason for audited financias :atements?
-
Contrast accounting and auditing as to (a) methodology and (b) purpose
-
How does the auditor's relationship with management differ, if at all, from his relationship with the board of directors an istockholder.
-
17. Taj operates a sole? proprietorship, maintaining the business records under the cash method of accounting. Taj performs services for a client and sends the client a bill for? $12,000. Six mont...
-
CRUZ, INC. Comparative Balance Sheets December 31, 2015 CRUZ, INC. Income Statement For Year Ended December 31, 2015 Required Use the indirect method to prepare the cash provided or used from...
-
On December 31, 2011, Perseus Ltd. acquired 64% of the common shares of Miram Ltd. for $576,000. The carrying amount of Mirams identiable net assets at the acquisition date was $735,000. Mirams...
-
Because the Moth Cement Works has a number of subsidiaries, Star Lin is required to prepare a set of consolidated nancial statements for the group. She is concerned about the calculation of the NCI...
-
You work in the Office of the Comptroller General. The Director to whom you report has recently returned from a conference on public sector financial reporting. Among the topics discussed was a new...
-
Affordable Art Company has a Print Division that is currently producing 100,000 prints per year but has a capacity of 150,000 prints. The variable costs of each print are \($28\), and the annual...
-
The Stallion Division of Motortown Motors had an operating income of \($675,000\) and net assets of \($2,700,000\). Motortown Motors has a target rate of return of 23 percent. Required a. Compute the...
-
The Worldwide Auditors Association is a professional association. Its current membership totals 97,600 worldwide. The association operates from a central headquarters in New Zealand but has local...
Study smarter with the SolutionInn App