Orge (reporting currency: Org). The parent company reporting currency is the dollar. The following information has...

Transcribed Image Text:

Orge (reporting currency: Org). The parent company reporting currency is the dollar. The following information has been gathered from company and market sources. Excerpts of company financial information and exchange rates F/X rate (close of trading day) Org/$ as of Feb 1, 2012 3.1505 as of Apr 15, 2017 12.6550 as of Nov 15, 2023 10.3250 as of Dec 31, 2023 11.5000 Jan 1-Dec 31, 2023 average 10.5745 Total liabiities and equity Org/$ $ Current year Prior year 1,568,675 172,000.9 a. Calculate the company's financial information under each of the three currency translation methods current / non-current, monetary / non-monetary and temporal methods. (30 marks) b. In a conversation with company management, you are informed that the value of inventory at market value on Dec 31, 2023 was Org 211,400. What impact, if any, will this have on the translation of inventory under the current / non-current and monetary/non-monetary and temporal methods. (5 marks) Calculate the return on equity (ROE) and return on assets (ROA), which currency translation method presents the best company results. Justify your answer with calculations. (5 marks) C. Org/$ $ $ $ *Inventory value (acquired Nov 15, 2023) 202,000 **Prepaid expenses (incurred Nov 15, 2023) ***Fixed assets (acquired Feb 1, 2012) ALong-Term Debt (issued Apr 15, 2017) A^Capital stock (issued Feb 1, 2012) Total Revenue (Jan 1 - Dec 31, 2023) Net income (Jan 1 - Dec 31, 2023) 67,400 289,275 4. 375,000 125,000 1,315,450 243,358 124,398.3 23,013.7 124,398.3 23,013.7 124,398.3 23,013.7 Org/$ $ Current year Prior year Balance sheet Cash 531,600 55,068.7 Accounts Receivable 478,400 49,557.7 Inventory* 202,000 20,925.3 Prepaid expenses** 67,400 6,982.0 Fixed Assets*** 289,275 29,966.1 Total assets 1,568,675 162,499.7 Liabilities Accounts Payable 633,900 65,666.0 Long-Term Debt^ 375,000 38,846.4 Total Liabilities 1,008,900 104,512.4 Capital stock^^ 125,000 22,450.0 Retained earnings 434,775 45,038.5 Total equity 559,775 67,488.5 3FC3 Assignment #2 As the new CFO of a Brazilian company, you have been reviewing the company's financial position. The company would like to expand into a growing market by building a local plant. The new plant construction will require the issuance of debt or equity. Identify advantages and disadvantages of issuing debt or equity in a foreign currency? (10 marks) 5. Company XYX has entered into an interest rate swap with Bank ABC with the following terms: Co XYZ receives QONIA+0.75%, pays 6.5% Notional principal: $150 million Payment terms: semi-annual Term: 3 years Time QONIA T=0 7:50% T 0.5 7.10% T=1.0 6.70% T= 1.5 7.00% T=2.0 7.30% T=2.5 6.75% T=3 6.50% a. Calculate the cash flows, including net amount, over the life of the swap. (10 marks) b. Compare and contrast an fixed-floating interest rate swap with a fixed-floating currency swap. (5 marks) 6. Compare and contrast accounting and economic exposure. (10 marks) 2 3FC3 Assignment #2 3 Orge (reporting currency: Org). The parent company reporting currency is the dollar. The following information has been gathered from company and market sources. Excerpts of company financial information and exchange rates F/X rate (close of trading day) Org/$ as of Feb 1, 2012 3.1505 as of Apr 15, 2017 12.6550 as of Nov 15, 2023 10.3250 as of Dec 31, 2023 11.5000 Jan 1-Dec 31, 2023 average 10.5745 Total liabiities and equity Org/$ $ Current year Prior year 1,568,675 172,000.9 a. Calculate the company's financial information under each of the three currency translation methods current / non-current, monetary / non-monetary and temporal methods. (30 marks) b. In a conversation with company management, you are informed that the value of inventory at market value on Dec 31, 2023 was Org 211,400. What impact, if any, will this have on the translation of inventory under the current / non-current and monetary/non-monetary and temporal methods. (5 marks) Calculate the return on equity (ROE) and return on assets (ROA), which currency translation method presents the best company results. Justify your answer with calculations. (5 marks) C. Org/$ $ $ $ *Inventory value (acquired Nov 15, 2023) 202,000 **Prepaid expenses (incurred Nov 15, 2023) ***Fixed assets (acquired Feb 1, 2012) ALong-Term Debt (issued Apr 15, 2017) A^Capital stock (issued Feb 1, 2012) Total Revenue (Jan 1 - Dec 31, 2023) Net income (Jan 1 - Dec 31, 2023) 67,400 289,275 4. 375,000 125,000 1,315,450 243,358 124,398.3 23,013.7 124,398.3 23,013.7 124,398.3 23,013.7 Org/$ $ Current year Prior year Balance sheet Cash 531,600 55,068.7 Accounts Receivable 478,400 49,557.7 Inventory* 202,000 20,925.3 Prepaid expenses** 67,400 6,982.0 Fixed Assets*** 289,275 29,966.1 Total assets 1,568,675 162,499.7 Liabilities Accounts Payable 633,900 65,666.0 Long-Term Debt^ 375,000 38,846.4 Total Liabilities 1,008,900 104,512.4 Capital stock^^ 125,000 22,450.0 Retained earnings 434,775 45,038.5 Total equity 559,775 67,488.5 3FC3 Assignment #2 As the new CFO of a Brazilian company, you have been reviewing the company's financial position. The company would like to expand into a growing market by building a local plant. The new plant construction will require the issuance of debt or equity. Identify advantages and disadvantages of issuing debt or equity in a foreign currency? (10 marks) 5. Company XYX has entered into an interest rate swap with Bank ABC with the following terms: Co XYZ receives QONIA+0.75%, pays 6.5% Notional principal: $150 million Payment terms: semi-annual Term: 3 years Time QONIA T=0 7:50% T 0.5 7.10% T=1.0 6.70% T= 1.5 7.00% T=2.0 7.30% T=2.5 6.75% T=3 6.50% a. Calculate the cash flows, including net amount, over the life of the swap. (10 marks) b. Compare and contrast an fixed-floating interest rate swap with a fixed-floating currency swap. (5 marks) 6. Compare and contrast accounting and economic exposure. (10 marks) 2 3FC3 Assignment #2 3