Kase Tractor Company, a multinational company, allows its divisions to operate as autonomous units. In the...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Kase Tractor Company, a multinational company, allows its divisions to operate as autonomous units. In the year 2018 it established a division in a South American country as a subsidiary corporation, with an initial investment in total assets of 6.5 million Pesos (the local currency), 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. At the end of the first year (2018), the subsidiary manager was pleased to report a 20% ROI with sales of 1,000,000 Canadian dollars. The current exchange rate as of the end of the year 2019 was 3 pesos to 1 Canadian dollar. The tax rate for the two Canadian divisions is 35% and for the South American division is 20%. Other operating data for 2009 follow: Revenues Accounts receivable Total assets Accounts Payable Ontario Quebec (in Cdn dollars) (in Cdn dollars) $2,250,000 $500,000 800,000 152,500 400,000 Net operating income Taxable income WACC 1,000,000 250,000 220,000 165,000 11.5% 100,000 60,000 90,000 South America 11.5% (in pesos) $3,900,000 1.435,000 5,500,000 500,000 1,000,000 850,000 7.5% REQUIRED 1. Compute the return on investment for each division in 2019 and calculate the South American subsidiary's income in pesos for the year 2018. 2. Compute the EVA for each division. 3. What other ratio could be calculated for performance evaluation? Explain why it would beneficial. 4. Calculate the RI of the South American subsidiary in Canadian dollars for the years 2018 and 2019. 5. Explain at least two factors that may have contributed to the increase or decrease in RI between 2018 and 2019 in the South American division Kase Tractor Company, a multinational company, allows its divisions to operate as autonomous units. In the year 2018 it established a division in a South American country as a subsidiary corporation, with an initial investment in total assets of 6.5 million Pesos (the local currency), 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. At the end of the first year (2018), the subsidiary manager was pleased to report a 20% ROI with sales of 1,000,000 Canadian dollars. The current exchange rate as of the end of the year 2019 was 3 pesos to 1 Canadian dollar. The tax rate for the two Canadian divisions is 35% and for the South American division is 20%. Other operating data for 2009 follow: Revenues Accounts receivable Total assets Accounts Payable Ontario Quebec (in Cdn dollars) (in Cdn dollars) $2,250,000 $500,000 800,000 152,500 400,000 Net operating income Taxable income WACC 1,000,000 250,000 220,000 165,000 11.5% 100,000 60,000 90,000 South America 11.5% (in pesos) $3,900,000 1.435,000 5,500,000 500,000 1,000,000 850,000 7.5% REQUIRED 1. Compute the return on investment for each division in 2019 and calculate the South American subsidiary's income in pesos for the year 2018. 2. Compute the EVA for each division. 3. What other ratio could be calculated for performance evaluation? Explain why it would beneficial. 4. Calculate the RI of the South American subsidiary in Canadian dollars for the years 2018 and 2019. 5. Explain at least two factors that may have contributed to the increase or decrease in RI between 2018 and 2019 in the South American division
Expert Answer:
Answer rating: 100% (QA)
1 Comp ute the return on investment for each division in 2019 and calculate the South Amer in can subsidiary s income in pes os for the year 2018 ANS ... View the full answer
Posted Date:
Students also viewed these accounting questions
-
Marys Auto Shop Inc. allows its divisions to operate as autonomous units. Their results for the current year were as follows: Sport Terrain City Revenues $1,700,000 $800,000 $6,000,000 Current assets...
-
Colorado Company is considering a project with an initial investment of $599,500 that is expected to produce cash inflows of $128,000 for ten years. Colorado's required rate of return is 10%. What is...
-
Tetryl Company Is considering a project with an initial Investment of $200,000 in new equipment that will yield annual net cash flows of $48,000 and will depreciate at $24,000 per year over its eight...
-
Suppose Targets stock has an expected return of 20% and a volatility of 40%, Hersheys stock has an expected return of 12% and a volatility of 30%, and these two stocks are uncorrelated. a. What is...
-
Does an unrealized gain or loss on trading securities require recognition in a statement of cash flows? Would your answer change if the securities are classified as available-for-sale?
-
A particle is subject to a force Fx that varies with position as in Figure P7.13. Find the work done by the force on the particle as it moves (a) From x = 0 to x = 5.00 m, (b) From x = 5.00 m to x =...
-
Determine the modified Sherwood number \(\mathrm{Sh}_{\text {gas,partial_pressure }}=\frac{\mathrm{k}_{\mathrm{p}} \mathrm{d}_{\text {tube }}\left(\mathrm{p}_{\mathrm{B}}...
-
The trial balance for Pioneer Advertising Agency Inc. is shown in Illustration 3-3, page. In lieu of the adjusting entries shown in the text at October 31, assume the following adjustment data. 1....
-
A house sells for $135,000. The rate is 5.5 with monthly payments for 30 years. What will the monthly payments be? What will the total interest paid be?
-
Kepler's second law states that as a planet moves around in its orbit, it sweeps out equal areas in equal times. Examine the following figure, which shows a planet (blue dot, labeled "E"), orbiting...
-
Saba Corp. purchased an apartment complex in 2020 for $ 450,000 ($100,000 for the land, $ 350,000 for the building) and sold it in 2021 for $ 460,000 ($ 120,000 for the land, $ 340,000 for the...
-
In the case of the same Reynolds number Ret, try to find the ratio of the frictional resistance generated when water at 20 C and air at 30 C flow in parallel through a plate of length L.
-
Why is the fuselage of an airplane slender, and the slenderness ratio of an airplane generally taken? (The ratio of the length of the fuselage to the maximum diameter.)
-
Briefly describe the reasons for the use of lift-increasing devices on the aircraft.
-
The wings of a general aviation aircraft are rectangular (extended length 9.75 m, chord length 1.6 m). The aircraft flies at a constant speed at sea level at a cruising speed of 227 km/h. Assuming...
-
What is meant by sampling error and non sampling error?
-
Question Assume the following currencies forwards quotes and risk-free rates in Canada and in France: 1-year US/Euro 1.2355 1-year US/CAD [FRA CAD 0.8665 2.5% 4% (a) What are the 1-year theoretical...
-
Calculate the number of neutrons of 239Pu.
-
Consider the Bayesian model for \(\tau=\left\{x_{1}, \ldots, x_{n} ight\}\) with likelihood \(g(\tau \mid \mu)\) such that \(\left(X_{1}, \ldots, X_{n} \mid \mu ight) \sim_{\text {idd }}...
-
Consider the sequence \(w_{0}, w_{1}, \ldots\),where \(w_{0}=g(\boldsymbol{\theta})\) is a non-degenerate initial guess and \(w_{t}(\boldsymbol{\theta}) \propto w_{t-1}(\boldsymbol{\theta}) g(\tau...
-
Let \(X \sim \operatorname{Gamma}(\alpha, \lambda)\). Show that the pdf of \(Z=1 / X\) is equal to \[ \frac{\lambda^{\alpha}(z)^{-\alpha-1} \mathrm{e}^{-\lambda(z)-1}}{\Gamma(\alpha)}, \quad z>0 \]
Study smarter with the SolutionInn App