Multinational rms, differing risk, comparison of prot, ROI, and RI. Newmann, Inc. has divisions in the United States, France, and Australia. The U.S. division is the oldest and most established of the three and has a cost of capital of 6%. The French division was started four years ago when the exchange rate for the Euro was 1 Euro = $1.34 USD. The French division has a cost of capital of 8%. The division in Australia was started this year, when the exchange rate was 1 Australian Dollar (AUD) = $0.87 USD. Its cost of capital is 11%. Average exchange rates for the current year are 1 euro = $1.07 and 1 AUD = $0.74 USD. Other information for the three divisions includes: AustraliaLong-term assetsOperating revenuesOperating expensesIncome-tax rateUnited States$22,048,000$31,826,170$26,738,33035%France11,422,761 euros7,023,860 euros4,980,290 euros8,798,851 AUD4,509,628 AUD3,216,892 AUD30%20% 1. Translate the French and Australian information into dollars to make the divisions comparable. Find theafter-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 residualincome and compare.4. Redo requirement 2 using pretax operating income instead of net income. Why is there a big difference,and what does this mean for performance evaluation?Required

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FINANCIAL ACCOUNTING

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ISBN:9781259964947

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Chapter1: Financial Statements And Business Decisions

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Multinational rms, differing risk, comparison of prot, ROI, and RI. Newmann, Inc. has divisions in the United States, France, and Australia. The U.S. division is the oldest and most established of the three and has a cost of capital of 6%. The French division was started four years ago when the exchange rate for the Euro was 1 Euro = $1.34 USD. The French division has a cost of capital of 8%. The division in Australia was started this year, when the exchange rate was 1 Australian Dollar (AUD) = $0.87 USD. Its cost of capital is 11%. Average exchange rates for the current year are 1 euro = $1.07 and 1 AUD = $0.74 USD. Other information for the three divisions includes:

Australia
Long-term assets
Operating revenues
Operating expenses
Income-tax rate
United States
$22,048,000
$31,826,170
$26,738,330
35%
France
11,422,761 euros
7,023,860 euros
4,980,290 euros
8,798,851 AUD
4,509,628 AUD
3,216,892 AUD
30%
20%

1. Translate the French and Australian 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 this mean for performance evaluation?
Required

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