The Grandlund Corporation manufactures similar products in Canada and Norway. The Canadian and Norwegian operations are organized

Question:

The Grandlund Corporation manufactures similar products in Canada and Norway. The Canadian and Norwegian operations are organized as decentralized divisions. The following information is available for 2016; ROI is calculated as operating income divided by total assets:

Canadian Division Norwegian Division

Operating income ................. ? ......................... 8,100,000 kroner

Total assets ................. $8,000,000 .................. 52,500,000 kroner

ROI ............................... 15% ........................................ ?

Both investments were made on December 31, 2015. The exchange rate at the time of Grandlund's investment in Norway on December 31, 2015, was 6 kroner = $1. During 2016, the Norwegian krone increased steadily in value so that the exchange rate on December 31, 2016, is 7 kroner = $1. The average exchange rate during 2016 is [(6 + 7)/2] = 6.5 kroner = $1.

Required

1. a. Calculate the Canadian division's operating income for 2016.

b. Calculate the Norwegian division's ROI for 2016 in kroner.

2. Top management wants to know which division earned a better ROI in 2016. What would you tell them? Explain your answer.

3. Which division do you think had the better RI performance? Explain your answer. The required rate of return on investment (calculated in Canadian dollars) is 12%.

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...