Question

Borg Controls has a net investment in its German subsidiary of $2.68 million. The firm attempts to earn a 15% pretax return on its investment. Variable costs for the German subsidiary are 60% of revenues. Annual fixed costs are €321,000. For the current year, the manager of the German subsidiary anticipates revenues of €1.7 million. The exchange rate is expected to be €1.2 = $1.

REQUIRED
A. If operations meet expectations, what is the pretax rate of return that Borg Controls will earn from its German subsidiary?
B. What level of revenue in Euros would be required of the subsidiary for the parent to earn exactly a 15% rate of return in dollars, assuming no changes in the exchange rate?



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  • CreatedJanuary 26, 2015
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