CASE DETAILS

Multi-Diversified (MD) is an established, U.S.-based multinational corporation that is in the business of producing and selling widgets.MD is listed on the New York Stock Exchange (NYSE) and is required to report using U.S. GAAP.They are headquartered in Las Vegas, Nevada and employ nearly 50,000 people. Sustainability is a major part of their brand and company culture.MD voluntarily produces CSR reports in addition to their financials each period.

After performing a SWOT analysis, MD decided that they needed to expand manufacturing and sales internationally to areas that have low labor costs, low tax rates, and where there is a sufficient market demand for widgets.

Before selecting potential geographical areas for expansion, MD wants to gauge the international appetite for widgets by making export sales to large global markets including Russiaand France.They made the sales on September 1, 2020(sales price: 10,000 foreign currency units) and collected payment on September 30, 2020.

Management identified three potential international targets for a new and highly efficient production facility.Management estimates that they have $1,000,000 to initially invest.They need to reclaim their investment within 5 years and require a return of at least 5%.The information about these targets is below.

For whichever target MD chooses, MD plans to be very involved in day-to-day operations as well as determine sales prices, lend money to the target for wages and capital investment decisions, and have a significant amount of upstream and downstream transactions.

Please address the following points regarding the case. You are free to use your notes, textbook, and the internet. If you use the internet sources, please cite your source to avoid plagiarism. You should use your own words to answer the questions or face penalties (see syllabus). Given the format of the case, you are expected to provide detailed answer: using case details to each question to receive full credit. Foreign Currency Transactions 1. With respect to the export sales to the Russia (Ruble) and France (Euro), please record thejournal entries for September 1 and September 30[1]. 2. Which sale do you wish you had hedged (use numbers to support your answer)? 3. Comparing the two hedging instruments we discussed in class, which one you would use for future export sales and why? [1] You can nd historical exchange rates at the following link: https://www.xe.com/currencytablesl. Please round to two decimal places (e.g., 1.23). IF YOU USE AN ALTERNATIVE SOURCE TO FIND HISTORICAL EXCHANGE RATES, YOU MUST CITE YOUR SOURCE Selecting Targets Before comparing potential targets, we must perform an accounting analysis to make their nancial uniform and comparable. 1. Using the notes to the nancial statements, please prepare the adjusting entry needed to be able to compare Charlie Ltd. with the other two [FRS-following targets. 2. Assume we wanted to do 20-F reconciliations for Alpha Company and Bravo Inc. Please prepare the journal entries needed to reconcile their IFRS statements to US. GAAP. Select the Target Which target do you think would be the best choice for Multi-Diversied? Please address details from the case to justify your choice, as well as conduct additional research on these potential environments. Remember to do a 'top-down' analysis. This is where you will do most of your outside research for the case. 1. List one additional piece of information about the targets that would have been helpful in making your decision and explain why it would have been useful. International Auditing All three targets provide financial statements that are "audited". Is that sufficient assurance that the statements provide a true and fair view? What are the major areas of diversity with regards to auditing worldwide?International Sustainability Reporting You are in charge of creating MD's newest CSR report. The person previously in charge of creating the report was red because their report was criticized for not being relevant or reliable. What mistakes do you think the last person made and what will you do to circumvent these issues? Assume that Alpha Company was chosen as the target [from this point on]. International Transfer Pricing Assume that Alpha is going to produce the widgets for $400 and sell the widgets for $700. The manager of Alpha Company, in order to meet their performance evaluation goal, decides to sell the widgets to a sales division owned by Multi-Diversified that is located in the Cayman Islands (corporate tax rate = 0%). The widgets have an industry-average mark-up on cost of 40%. 1. What is the negotiated transfer price using the cost-plus method? 2. Assume Multi-Diversified (the parent) intervenes and sets a discretionary transfer price of $450. Please explain why MD would take this action and which parties will be harmed in this deal (use financial figures in your answer).International Taxation Assume Alpha Company produced $225,000 in foreign source income this period that must be claimed by MD for tax purposes. Greek local taxes are $35,000. Would MD be better off taking a FTC or a deduction for Alpha's income? Please show how you reached your conclusion. TARGET DETAILS Payback Location ROI NPV IRR Corporate Proposed FV of Net BV of Net Period Tax Rate Sale Price Assets Assets Alpha Greece 10 years 5.23% 0.0 6.45% $4.3 $3.6 29% Company $5.6 million million million Bravo Inc. Australia 6.5 years 4.98% 1.0 4.93% $6.8 30% $5.8 $7.8 million million million Charlie Ltd. UK 3 years 5.5% 5.0 $6.5 $5.8 3.25% 34% $4.4 million million million Notes to Alpha Company's financial statements: Greek firms, as part of the EU, are required to use IFRS as of 2005. This year Alpha invested heavily in Al-research costs were 700,000E and development costs were 1.3 million Euros. Notes to Bravo Inc.'s financial statements: Bravo Inc. follows Australian GAAP, which is equivalent to IFRS. They use the revaluation method for measuring their PP&E and check for impairments each year. This year they reversed 500,000 Australian Dollar worth of impairments for their PP&E. Notes to Charlie Ltd.'s financial statements: UK firms are required to use UK GAAP, which is a modified and outdated version of IFRS. If they were using the up-to-date IFRS rules, they would have been forced to use an alternative inventory cost flow assumption and would miss out on cost savings of 76,000 British Pounds this period