Problem 11.5 Italiana S.A. (A) Italiana S.A. is the Italian subsidiary of a British automobile spare...

 

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Problem 11.5 Italiana S.A. (A) Italiana S.A. is the Italian subsidiary of a British automobile spare parts company. The following is its balance sheet as at December 31, when the exchange rate between the euro and the British pound was €1.3749/GBP. Using the current rate method, calculate the contribution of the Italian subsidiary to the translation exposure of its parent on December 31. Assume that there was no change in Italianica's accounts since the beginning of the year. Balance Sheet (thousands of euros) Exchange Rate Assets December 31st €/£ Cash. 1.3749 95,000 180,000 125,000 250,000 650,000 Accounts receivable 1.37 Inventory Net plant & equipment 1.37 1.37 Liabilities & Net Worth Current liabilities Long-term debt Capital stock Retained earnings 60,000 1.37 110,000 350,000 1.37 1.37 130,000 650,000 1.37 b) Translation Dec-31 €/£ Calculation of Accounting Exposures: Exposed assets (all assets) Less exposed liabilities (curr liabs + it debt) a) Net exposure € (000s) 650,000 (170,000) 480,000 1.37 £472,762 (123,645) £349,116 Problem 11.5 Italiana S.A. (A) Italiana S.A. is the Italian subsidiary of a British automobile spare parts company. The following is its balance sheet as at December 31, when the exchange rate between the euro and the British pound was €1.3749/GBP. Using the current rate method, calculate the contribution of the Italian subsidiary to the translation exposure of its parent on December 31. Assume that there was no change in Italianica's accounts since the beginning of the year. Balance Sheet (thousands of euros) Exchange Rate Assets December 31st €/£ Cash. 1.3749 95,000 180,000 125,000 250,000 650,000 Accounts receivable 1.37 Inventory Net plant & equipment 1.37 1.37 Liabilities & Net Worth Current liabilities Long-term debt Capital stock Retained earnings 60,000 1.37 110,000 350,000 1.37 1.37 130,000 650,000 1.37 b) Translation Dec-31 €/£ Calculation of Accounting Exposures: Exposed assets (all assets) Less exposed liabilities (curr liabs + it debt) a) Net exposure € (000s) 650,000 (170,000) 480,000 1.37 £472,762 (123,645) £349,116

Answer rating: 100% (QA)

ANS WER The Italian subsidiary s translation exposure on D... View the full answer