AlWatya Advance Car Company (AACC) is an international listed manufacturer and services of many Car products...

   

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AlWatya Advance Car Company (AACC) is an international listed manufacturer and services of many Car products and services based on Muscat. They rewarded many products patents through their research and development. They export different products to different countries like GCC, Pakistan, Malaysia and Romania. However The Sale and Marketing Department proposes to the board of governance to spin-off or acquire subsidiaries in Dubai or in Romania. They so attracted by their customer-based, cheaper raw material, and pool of skilled labors. That works to enhances the firm's strategy and growth sustainability. Due to COVID19 the demand in the local Omani market is stagnant and competition has increased manifold. However, finance department concerns about financial, and political uncertainty in Romania, and anti- money laundering laws in Europe, they object the proposal that raised by Sale and Marketing department. But they agreed to acquire Al-Bahja Company in Dubai. That because the risk is less in Dubai, although it is considered as a tax heaven country based on recent European Tax-Have List released last month. Further, Dubai currency is pegged with USD. This will reduce currency exposure compared to other currencies. Investing in Romania will create various issues like requirement of new employees' law, a lot of capital expenditure and risk exposure in these foreign markets. After listening both departments, the board of directors plans to open both subsidiaries of 40% of Al-Bahja Company based on Dubai, and 60% of Rahmanoof Auto-Mobile Products Company. Based on above information Revenue Expenses Year Ending 31 Dec 2021 55,000 45,000 10,000 12,000 77,000 90,000 120,000 299,000 25,000 90,000 77,000 107,000 Total liabilities & equity 299,000 Rahmanoof LLC's equipment was actually $70,000 and patented technology as $ 95,000. Fair value of receivables and inventory for Rahmanoof LLC was $ 145,000. While, the liabilities is valued to be $ 40000 AACC LLC acquired all common stock of Rahmanoof LLC by issuing 22,000 shares of $ 1 par value and having $ 19 as fair value and taking a loan of $ 45,000. Any undervalued noncurrent assets should be amortized spanning a five year period. Any access of consideration transferred over fair value should be amortized over ten years. Net income Cash Receivable and inventory Patented technology (noncurrent assets) 10 Year amortized Equipment (noncurrent assets) 5 Year Dep Total assets Liabilities Common stock (book value is $ 1 per share) Additional paid up capital Retained earnings AACC LLC Rahmanoof LLC (figures in S) (figures in S) Net income for 2021 Dividends declared for 2021 3,000 Net income for 2022 33,000 Dividends declared for 2022 9,000 65,000 61,000 4,000 11,000 95,000 65,000 75,000 246,000 26,000 80,000 95,000 45,000 246,000 Following figures are assumed for the next two years: AACC Rahmanoof 19,000 7,000 5,000 9,000 4,000 Defend the query raised by Finance. Why currency risk is an important benchmark for businesses pursuing foreign trade. (LO 3.1) What are various assumptions and limitations of current rate and temporal rate of translation exposure. Which method is suitable for the given scenario? (LO 3.2 & LO 3.3) AlWatya Advance Car Company (AACC) is an international listed manufacturer and services of many Car products and services based on Muscat. They rewarded many products patents through their research and development. They export different products to different countries like GCC, Pakistan, Malaysia and Romania. However The Sale and Marketing Department proposes to the board of governance to spin-off or acquire subsidiaries in Dubai or in Romania. They so attracted by their customer-based, cheaper raw material, and pool of skilled labors. That works to enhances the firm's strategy and growth sustainability. Due to COVID19 the demand in the local Omani market is stagnant and competition has increased manifold. However, finance department concerns about financial, and political uncertainty in Romania, and anti- money laundering laws in Europe, they object the proposal that raised by Sale and Marketing department. But they agreed to acquire Al-Bahja Company in Dubai. That because the risk is less in Dubai, although it is considered as a tax heaven country based on recent European Tax-Have List released last month. Further, Dubai currency is pegged with USD. This will reduce currency exposure compared to other currencies. Investing in Romania will create various issues like requirement of new employees' law, a lot of capital expenditure and risk exposure in these foreign markets. After listening both departments, the board of directors plans to open both subsidiaries of 40% of Al-Bahja Company based on Dubai, and 60% of Rahmanoof Auto-Mobile Products Company. Based on above information Revenue Expenses Year Ending 31 Dec 2021 55,000 45,000 10,000 12,000 77,000 90,000 120,000 299,000 25,000 90,000 77,000 107,000 Total liabilities & equity 299,000 Rahmanoof LLC's equipment was actually $70,000 and patented technology as $ 95,000. Fair value of receivables and inventory for Rahmanoof LLC was $ 145,000. While, the liabilities is valued to be $ 40000 AACC LLC acquired all common stock of Rahmanoof LLC by issuing 22,000 shares of $ 1 par value and having $ 19 as fair value and taking a loan of $ 45,000. Any undervalued noncurrent assets should be amortized spanning a five year period. Any access of consideration transferred over fair value should be amortized over ten years. Net income Cash Receivable and inventory Patented technology (noncurrent assets) 10 Year amortized Equipment (noncurrent assets) 5 Year Dep Total assets Liabilities Common stock (book value is $ 1 per share) Additional paid up capital Retained earnings AACC LLC Rahmanoof LLC (figures in S) (figures in S) Net income for 2021 Dividends declared for 2021 3,000 Net income for 2022 33,000 Dividends declared for 2022 9,000 65,000 61,000 4,000 11,000 95,000 65,000 75,000 246,000 26,000 80,000 95,000 45,000 246,000 Following figures are assumed for the next two years: AACC Rahmanoof 19,000 7,000 5,000 9,000 4,000 Defend the query raised by Finance. Why currency risk is an important benchmark for businesses pursuing foreign trade. (LO 3.1) What are various assumptions and limitations of current rate and temporal rate of translation exposure. Which method is suitable for the given scenario? (LO 3.2 & LO 3.3)

Answer rating: 100% (QA)

Defend the query raised by Finance Why currency risk is an important benchmark for businesses pursuing foreign trade ... View the full answer