Problem 19.4 Tierra Technology, Inc. ASSIGNMENT Tierra Technology, Inc., manufactures basic farm equipment in China, Spain,...

 

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Problem 19.4 Tierra Technology, Inc. ASSIGNMENT Tierra Technology, Inc., manufactures basic farm equipment in China, Spain, and Iowa. Each subsidiary has monthly unsettled balances due to or from other subsidiaries. At the end of December, unsettled intracompany debts in U.S. dollars were as follows: Transaction Amount costs Tierra Technology China: Owes to Spanish subsidiary Owes to Iowa parent $ 32,000 $ 8,000,000 $ 9,000,000 $ 36,000 Tierra Technology Spain: Owes to Chinese subsidiary Owes to lowa parent 20,000 $ 5,000,000 $ $ 6,000,000 $ 24,000 Tierra Technology Iowa: $ 4,000,000 $ Owes to Chinese subsidiary Owes to Spanish subsidiary 16,000 40,000 $ 10,000,000 $ $ 168,000 Foreign exchange transaction spreads 0.400% a. How could Tierra Technology net these intracompany debts? How much would be saved in transaction expenses over the no-netting alternative? b. Before settling the above accounts, Tierra Technology decides to invest $6,000,000 of parent funds in a new farm equipment manufacturing plant in the new Free Industrial Zone at Subic Bay, The Philippines. How can this decision be incorporated into the settlement process? What would be total bank charges? Explain. Problem 19.4 Tierra Technology, Inc. ASSIGNMENT Tierra Technology, Inc., manufactures basic farm equipment in China, Spain, and Iowa. Each subsidiary has monthly unsettled balances due to or from other subsidiaries. At the end of December, unsettled intracompany debts in U.S. dollars were as follows: Transaction Amount costs Tierra Technology China: Owes to Spanish subsidiary Owes to Iowa parent $ 32,000 $ 8,000,000 $ 9,000,000 $ 36,000 Tierra Technology Spain: Owes to Chinese subsidiary Owes to lowa parent 20,000 $ 5,000,000 $ $ 6,000,000 $ 24,000 Tierra Technology Iowa: $ 4,000,000 $ Owes to Chinese subsidiary Owes to Spanish subsidiary 16,000 40,000 $ 10,000,000 $ $ 168,000 Foreign exchange transaction spreads 0.400% a. How could Tierra Technology net these intracompany debts? How much would be saved in transaction expenses over the no-netting alternative? b. Before settling the above accounts, Tierra Technology decides to invest $6,000,000 of parent funds in a new farm equipment manufacturing plant in the new Free Industrial Zone at Subic Bay, The Philippines. How can this decision be incorporated into the settlement process? What would be total bank charges? Explain.

Answer rating: 100% (QA)

Solution a Tierra Technology would first construct a netting matrix to determine the net receipts pa... View the full answer