Borg Controls has a net investment in its German subsidiary of $2.68 million. The firm attempts to
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?
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...
Step by Step Answer:
A Expected pretax income 1700000 060 x 1700000 321000 359000 ...View the full answer
Cost Management Measuring Monitoring and Motivating Performance
ISBN: 978-0470769423
2nd edition
Authors: Leslie G. Eldenburg, Susan K. Wolcott
