Summary:

Problems & Cases (group work) Kase Tractor Company (Multinational firms, comparison of profit, ROI, RI and EVA).

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:

Ontario Quebec South America

(in Cdn dollars) (in Cdn dollars) (in pesos)

Revenues $2,250,000 $500,000 $3,900,000

Accounts receivable 800,000 152,500 1,435,000

Total assets 1,000,000 400,000 5,500,000

Accounts Payable 250,000 100,000 500,000

Net operating income 220,000 60,000 1,000,000

Taxable income 165,000 90,000 850,000

WACC 11.5% 11.5% 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.

Summary Problems & Cases (group work) Kase Tractor Company (Multinational firms, comparison of profit, ROI, RI and EVA). 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 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: Ontario Quebec South America (in Cdn dollars) (in Cdn dollars) in pesos) Revenues $2,250,000 $500,000 $3,900,000 Accounts receivable 800,000 152,500 1,435,000 Total assets 1,000,000 400,000 5,500,000 Accounts Payable 250,000 100,000 500,000 Net operating income 220,000 1,000,000 Taxable income 165,000 90,000 850,000 WACC 11.5% 11.5% 7.5% 60,000 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 Rl 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