Question: Zeiss Multinational Inc has divisions in the United States Germany

Zeiss Multinational, Inc., has divisions in the United States, Germany, and New Zealand. The U. S. division is the oldest and most established of the three and has a cost of capital of 6.5%. The German division was started 3 years ago when the exchange rate for the euro was 1 euro = $ 1.40. The German division is a large and powerful division of Zeiss, Inc., with a cost of capital of 10%. The New Zealand division was started this year, when the exchange rate was 1 New Zealand Dollar (NZD) – $ 0.75. Its cost of capital is 13%. Average exchange rates for the current year are 1 euro = $ 1.50 and 1 NZD = $ 0.60. Other information for the three divisions includes:

1. Translate the German and New Zealand information into dollars to make the divisions comparable. Find the after-tax operating income for each division and compare the profits.
2. Calculate ROI using after-tax operating income. Compare among divisions.
3. Use after-tax operating income and the individual cost of capital of each division to calculate residual income and compare.
4. Redo requirement 2 using pretax operating income instead of net income. Why is there a big difference, and what does it mean for performanceevaluation?
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  • CreatedMay 14, 2014
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