8. Luzon's EPS Sensitivity to Exchange Rates (B). Assume a major political crisis wracks Brazil, first affecting the value of the Brazilian reais and, subsequently, inducing an economic recession within the country. What would be the impact on Luzon's consolidated EPS if, in addition to the fall in the value of the reais to R$3.00/$, earnings before taxes in Brazil fell as a result of the recession to R$5,800,000? Luzon is a U.S.-based multinational manufacturing firm, with wholly owned subsidiaries in Brazil, Germany, and China, in addition to domestic operations in the United States. Luzon is traded on the NASDAQ. Luzon currently has 650,000 shares outstanding. The basic operating char- acteristics of the various business units is as follows:

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(ooos, local USA Brazil Germany China currency) (dollars, $) (reais, R$) (euros, e) (yuan, Y) Earnings before tax $4,500 R$6,250 4,500 2,500 (EBT) Corporate income tax 35% 25% 40% 30% rate Average exchange rate for period R$180/$ 0.7018/$ 7750/5