Question

The Mountainside Corporation manufactures similar products in the United States and Norway. The U. S. and Norwegian operations are organized as decentralized divisions. The following information is available for 2014; ROI is calculated as operating income divided by total assets:


Both investments were made on December 31, 2013. The exchange rate at the time of Mountainside’s investment in Norway on December 31, 2013, was 6 kroner = $ 1. During 2014, the Norwegian kroner decreased steadily in value so that the exchange rate on December 31, 2014, is 8 kroner = $ 1. The average exchange rate during 2014 is [(6 + 8), 2] = 7 kroner = $ 1.

Required
1. a. Calculate the U. S. division’s operating income for 2014.
b. Calculate the Norwegian division’s ROI for 2014 in kroner.
2. Top management wants to know which division earned a better ROI in 2014. What would you tell them? Explain your answer.
3. Which division do you think had the better RI performance? Explain your answer. The required rate of return on investment (calculated in U. S. dollars) is13%.


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  • CreatedMay 14, 2014
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