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Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question 10.3
A multinational corporation established a division in Germany as a subsidiary corporation, with an initial investment in total assets of 13 million €'s, which cost the company $19,240,000 Canadian at the time. The company sent an experienced manager to run the division, and gave her a target of 12% required
After one year, the subsidiary manager was pleased to report an 18% ROI.
You have been able to determine the following data pertaining to the subsidiary:
- Exchange rate at end of year was $1.42 Canadian to the Euro
- Operating income was earned evenly throughout the year
- The exchange rate changed approximately evenly throughout the year
Required:
- Calculate the subsidiary's income in €'s.
- Calculate the subsidiary's
return on investment in Canadian dollars. - Calculate the subsidiary's residual income in Canadian dollars.
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