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1.Company X is a U.S.-based IT company with operations and earnings in a number of foreign countries. The company's profits by subsidiary, in local currency (in millions), are shown in the following table for 2019 and 2020.

  Net Income           Japanese Subsidiary       Britih Subsidiary

2019                   JPY 200                            GBP 100.00

2020                   JPY 1,480                         GBP 108.40

The average exchange rate for each year, by currency pairs, is the following.

Exchange Rate      JPY = 1 USD                 USD = 1 GBP

      2019                     97.57                               1.5646

      2020                      90.88                               1.6473

 

Use the above data, Students answer the following questions.

1. What is Company X's consolidated profits in U.S. dollars in 2019 and 2020?

  

2. If the same exchange rates are used for both years, what is the change in corporate earnings on a "constant currency" basis?   

Using the results of the constant currency analysis in part b, is it possible to separate Company X's growth in earnings between local currency earnings and foreign exchange rate impacts on a consolidated basis?           

2.A company is working out of Vienna with operations in New York simultaneously calls Citibank in New York City and Barclays in London. The banks give the following quotes on the euro simultaneously.

Citibank NYC                               Barclays London                 

$1.2828–29/€                                       $1.2824–25/€                   

Using $2 million or its euro equivalent, determine whether the corporate treasury could make geographic arbitrage profit with the two different exchange rate quotes.

3.Breakeven point; profit; cost function Chloe Enterprises operates a single-product entity. Data relating to the product for 2016 were as follows: Annual volume Selling price per unit Variable manufacturing cost per unit Annual fixed manufacturing costs Variable marketing and distribution costs per unit Annual fixed non-manufacturing costs 32 000 units $60 $28 $120 000 $12 $360 000 Required Calculate the break-even units for 2016. (b) Calculate the profit achieved in 2016. (C) Changes in marketing strategy are planned for 2017. This would increase variable marketing and distribution costs by $4 per unit, and reduce fixed non-manufacturing costs by $80 000 per year. Calculate the units that would need to be sold in 2017 to achieve the same profit as in 2016. (d) Would you recommend the change? Explain. (L02,3)