Global Enterprises, Inc. uses a number of performance criteria to evaluate its overseas operations, including return on
Question:
Local financing decisions are centralized at corporate treasury, as are all matters related to tax planning. At the same time, Global Enterprises thinks that all subsidiaries should be able to cover reasonable financing costs. Moreover, it thinks that foreign managers should be motivated to use local resources as efficiently as possible. Hence, Compagnie de Calais is assessed a capital charge based on its net assets and the parent companys average cost of capital. This figure, which amounts to $120,000, is included in the $162,000 interest expense figure. One-half of the exchange gains and losses figure is attributed to transactions losses resulting from the Belgian subsidiarys export activities. The balance is due to translating the Belgian accounts to U.S. dollars for consolidation purposes. Exchange risk management is also centralized at corporate treasury. Required: Based on the foregoing information, prepare a performance report that isolates those elements that should be included in performance appraisals of the foreignunit.
Step by Step Answer: