1/ Imagine that you run a U.S. company based in New Jersey that lists only on the New York Stock exchange. Assume that the company has only one factory, located in New Jersey. All of the companyâs workers are paid in U.S. dollars and the company buys all of its materials from U.S. suppliers (and pays in dollars). Also, all of the companyâs other costs are paid for in U.S. dollars; however, assume that all of the countryâs products are exported to Europe and that all of its sales are denominated in Euros. Further assume that all of these exports are sold by the companyâ European sales office. This Office is a subsidiary of the U.S. Headquarters and consolidates its statements with the U.S. headquarters.
Questions: Assume that the dollar has been increasing in value against the Euro. For the U.S. company described above, what impact (if any) will the rising dollar have on the demand for the companyâs products? If the U.S. company described above sells to European companies on credit contracts denominated in Euros, what impact will the rise in the dollar have on the U.S. companyâs dollar valued Accounts Receivable? What is the reporting currency of the U.S. headquarters parent that lists on the NYSE. What is the functional current of the U.S. (headquarters) parent. What is the functional currency of the foreign (sales office) subsidiary?
2/ Imagine that you run a U.S. company based in New Jersey and lists only on the NYSE. Assume that the companyâs main headquarters is in New Jersey, but that its only factory is in Germany. Thus, all of the companyâs workers are paid in Euros and the company buys all of its materials from German firms (and pays Euros). Also, all of the companyâs (i.e. factoryâs) other costs are paid for in Euros. Also, assume that the companyâs German factory operates as a separate foreign subsidiary that consolidates its financial statements with the U.S. headquarters that lists on the NYSE.
Question: Assume that the dollar has been rising in value against the Euro. For the U.S. company described above, what impact will the rising dollar have on the demand for the companyâs products? If the U.S. company described above sells to German companies on credit contracts denominated in Euros, what impact will the increase in the dollar have on the U.S. companyâs Accounts Receivable? ? What is the reporting currency of the U.S. headquarters parent that lists on the NYSE. What is the functional current of the U.S. (headquarters) parent. What is the functional currency of the foreign subsidiary?
1/ Imagine that you run a U.S. company based in New Jersey that lists only on the New York Stock exchange. Assume that the company has only one factory, located in New Jersey. All of the companyâs workers are paid in U.S. dollars and the company buys all of its materials from U.S. suppliers (and pays in dollars). Also, all of the companyâs other costs are paid for in U.S. dollars; however, assume that all of the countryâs products are exported to Europe and that all of its sales are denominated in Euros. Further assume that all of these exports are sold by the companyâ European sales office. This Office is a subsidiary of the U.S. Headquarters and consolidates its statements with the U.S. headquarters.
Questions: Assume that the dollar has been increasing in value against the Euro. For the U.S. company described above, what impact (if any) will the rising dollar have on the demand for the companyâs products? If the U.S. company described above sells to European companies on credit contracts denominated in Euros, what impact will the rise in the dollar have on the U.S. companyâs dollar valued Accounts Receivable? What is the reporting currency of the U.S. headquarters parent that lists on the NYSE. What is the functional current of the U.S. (headquarters) parent. What is the functional currency of the foreign (sales office) subsidiary?
2/ Imagine that you run a U.S. company based in New Jersey and lists only on the NYSE. Assume that the companyâs main headquarters is in New Jersey, but that its only factory is in Germany. Thus, all of the companyâs workers are paid in Euros and the company buys all of its materials from German firms (and pays Euros). Also, all of the companyâs (i.e. factoryâs) other costs are paid for in Euros. Also, assume that the companyâs German factory operates as a separate foreign subsidiary that consolidates its financial statements with the U.S. headquarters that lists on the NYSE.
Question: Assume that the dollar has been rising in value against the Euro. For the U.S. company described above, what impact will the rising dollar have on the demand for the companyâs products? If the U.S. company described above sells to German companies on credit contracts denominated in Euros, what impact will the increase in the dollar have on the U.S. companyâs Accounts Receivable? ? What is the reporting currency of the U.S. headquarters parent that lists on the NYSE. What is the functional current of the U.S. (headquarters) parent. What is the functional currency of the foreign subsidiary?
Related questions
âI know headquarters wants us to add that new product line,âsaid Dell Havasi, manager of Billings Companyâs Office ProductsDivision. âBut I want to see the numbers before I make any move.Our divisionâs return on investment (ROI) has led the company forthree years, and I donât want any letdown.â |
| Billings Company is adecentralized wholesaler with five autonomous divisions. Thedivisions are evaluated on the basis of ROI, with year-end bonusesgiven to the divisional managers who have the highest ROIs.Operating results for the companyâs Office Products Division forthe most recent year are given below:
The company had an overall return on investment (ROI) of 18.00%last year (considering all divisions). The Office Products Divisionhas an opportunity to add a new product line that would require anadditional investment in operating assets of $2,126,350. The costand revenue characteristics of the new product line per year wouldbe: |
| Sales | $9,350,000 |
| Variableexpenses | 65% ofsales |
| Fixed expenses | $ 2,560,500 |
| Required: | |
| 1. | Compute the Office Products Divisionâs ROI for the most recentyear; also compute the ROI as it would appear if the new productline is added. |
âI know headquarters wants us to add that new product line,â said Dell Havasi, manager of Billings Companyâs Office Products Division. âBut I want to see the numbers before I make any move. Our divisionâs return on investment (ROI) has led the company for three years, and I donât want any letdown.â
Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. Operating results for the companyâs Office Products Division for this year are given below:
| Sales | $ | 22,900,000 |
| Variable expenses | 14,313,400 | |
| Contribution margin | 8,586,600 | |
| Fixed expenses | 6,205,000 | |
| Net operating income | $ | 2,381,600 |
| Divisional average operating assets | $ | 4,580,000 |
The company had an overall return on investment (ROI) of 17.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $2,484,500. The cost and revenue characteristics of the new product line per year would be:
| Sales | $9,942,400 |
| Variable expenses | 65% of sales |
| Fixed expenses | $2,602,240 |
Required:
1. Compute the Office Products Divisionâs ROI for this year.
2. Compute the Office Products Divisionâs ROI for the new product line by itself.
3. Compute the Office Products Divisionâs ROI for next year assuming that it performs the same as this year and adds the new product line.
4. If you were in Dell Havasiâs position, would you accept or reject the new product line?
5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line?
6. Suppose that the companyâs minimum required rate of return on operating assets is 13% and that performance is evaluated using residual income.
a. Compute the Office Products Divisionâs residual income for this year.
b. Compute the Office Products Divisionâs residual income for the new product line by itself.
c. Compute the Office Products Divisionâs residual income for next year assuming that it performs the same as this year and adds the new product line.
d. Using the residual income approach, if you were in Dell Havasiâs position, would you accept or reject the new product line?
