INTERNATIONAL ACCOUNTING
5th Edition
ISBN: 9781260918281
Author: Doupnik
Publisher: MCG
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Chapter 10, Problem 5EP
Imogdi Corporation (a U.S-based company) has a wholly-owned subsidiary in Argentina, whose manager is being evaluated on the basis of the variance between actual profit and budgeted profit in U.S. dollars. Relevant information in Argentine pesos (
Current year actual and projected exchange rates between the ARS and the U.S. dollar (USD) are as follows:
Required:
- a. Calculate the total
budget variance for the current year using each of the five combinations of exchange rates for translating budgeted and actual results shown in Exhibit 10.10. - b. Make a recommendation to Imogdi’s corporate management as to which combination in item (a) should be used, assuming that the manager of the Argentinian subsidiary does not have the authority to hedge against changes in exchange rates.
- c. Make a recommendation to Imogdi’s corporate management as to which combination in item (a) should be used, assuming that the manager of the Argentinian subsidiary has the authority to hedge against unexpected changes in exchange rates.
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Students have asked these similar questions
International Capital Budgeting Using the Foreign Currency Approach. ABC Company is considering a capital project with the cash flows as stated below in Euros. The project is in Euros and must be converted back to USD. The exchange rate is 0.83 Euros. The difference in the nominal rates between the two currencies is 2 percent.
The appropriate discount rate for the project is estimated to be 10%, the US cost of capital for the company.
What is the NPV of the project in US Dollars?
NPV
Year Cash Flows in Euro
0 € -2,900,000
1 €1,300,000
2 €1,300,000
3 €1,300,000
Round to the nearest cent and format as "XXX,XXX.XX"
Suppose you observe the following direct spot quotations in New York and Toronto,respectively: USD 0.8000-50 and CAD 1.2500-60. What are the arbitrage pr()fits per USD Imn?
Company B management had a meeting on 1 October 2012 to discuss the capital expenditure
budget for the year 2013. During the meeting, the management decided to purchase equipment
for USD1 million on 1 February 2013. Functional currency is SGD.
The equipment was delivered on 1 February 2013. In order to hedge the foreign exchange risk,
company B entered into a foreign exchange forward contract on 1 October 2012 to buy USD1
million sell SGD with maturity date 1 February 2013.
The USD/SGD spot rates and forward rates are as follows:
USD/SGD spot
USD/SGD forward points for maturity 1
February 2013
rates
1-Oct-12
1.23
-0.0003
31-Dec-12
1.22
-0.0001
1-Feb-13
1.23
Requirements
(a) Explain if a hedge exists; if so the type of hedge, hedging instrument and hedged item; if
not why.
(b) Record the journal entries on 31 December 2012 and 1 February 2013.
Chapter 10 Solutions
INTERNATIONAL ACCOUNTING
Ch. 10 - Prob. 1QCh. 10 - What makes calculation of NPV for a foreign...Ch. 10 - How does the evaluation of a potential foreign...Ch. 10 - Prob. 4QCh. 10 - How does an ethnocentric organizational structure...Ch. 10 - Prob. 6QCh. 10 - When might it be appropriate to evaluate the...Ch. 10 - Prob. 8QCh. 10 - Prob. 9QCh. 10 - How can a local currency operating budget and...
Ch. 10 - Prob. 11QCh. 10 - What is the advantage of using a projected future...Ch. 10 - Prob. 3EPCh. 10 - Prob. 4EPCh. 10 - Imogdi Corporation (a U.S-based company) has a...Ch. 10 - Philadelphia, Inc. (a Greek company) has a foreign...Ch. 10 - Fitzwater Limited (an Irish company) has a foreign...Ch. 10 - Prob. 9EPCh. 10 - Viking Corporation (a U.S.-based company) has a...Ch. 10 - Duncan Street Company (DSC), a British company, is...
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