Concept explainers
a.
To determine: Cost in dollars to produce the SY 20 and the dollar sale price of SY 20.
Exchange Rate:
It refers to exchange of one currency into another. For example exchange of Country I’s rupee to Country U’s $, Euro to pound, Euro to Country U’s $.
b.
To determine: The dollar profit make by Yohe on the sale of SY 20 and the profit percentage.
c.
To determine: The dollar profit, if Country U’s dollar is weaken by 10%.
d.
To determine: The dollar profit, if Country U’s dollar is weaken by 10% against Japanese yen and all the values of foreign currencies remain constant.
e.
To determine: Calculate the
f.
To determine: Assuming PPP holds, calculate sale price of SY 20, if sold in Isla rather than Country J.
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Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)
- MULTINATIONAL FINANCIAL MANAGEMENT Yohe Telecommunications is a multinational corporation that produces and distributes telecommunications technology. Although its corporate headquarters are located in Maitland, Florida, Yohe usually buys its raw materials in several different foreign countries using several different foreign currencies. The matter is further complicated because Yohe often sells its products in other foreign countries. One product in particular, the SY-20 radio transmitter, draws Component X, Component Y, and Component Z (its principal components) from Switzerland, France, and the United Kingdom, respectively. Specifically, Component X costs 165 Swiss francs Component V costs 20 euros, and Component Z costs 105 British pounds. The largest market for the SY-20 is Japan, where the product sells for 50,000 Japanese yen. Naturally. Yohe is intimately concerned with economic conditions that could adversely affect dollar exchange rates. You will find Tables 17.1, 17.2, and 17.3 useful for completing this problem. a. How much in dollars docs it cost Yohe to produce the SY-20? What is the dollar sale price of the SY-20? b. What is the dollar profit that Yohe makes on the sale of the SY-20? What is the percentage profit? c. If the U.S. dollar was to weaken by 10% against all foreign currencies, what would be the dollar profit for the SY-20? d. If the U.S. dollar was to weaken by 10% only against the Japanese yen and remained constant relative to all other foreign currencies, what would be the dollar and percentage profits for the SY-20? e. Using the 180-day forward exchange information from Table 173, calculate the return on 1-year securities in Switzerland assuming the rate of return on 1-year securities in the United States is 4.9%. f. 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Now assume that Citrus Products begins producing the same liter of orange juice in Japan. The product costs 250 yen to produce and ship to Australia, where it can be sold for 6 Australian dollars. What is the US. dollar profit on the sale? 6. What is exchange rate risk? d. Briefly describe the current international monetary system. What are the different types of exchange rate systems? e. What is the difference between spot rates and forward rates? When is the forward rate at a premium to the spot rate? When is it at a discount? f. What is interest rate parity? Currently, you can exchange 1 yen for 0.0095 U.S. dollar in the 30-day forward market, and the risk-free rate on 30-day securities is 4% in both Japan and the United States. Docs interest rate parity hold? If not, which securities offer the highest expected return? g. What is purchasing power parity (PPP)? If grapefruit juice costs 2 a liter in the United States and purchasing power parity holds, what should be the price of grapefruit juice in Australia? h. What effect does relative inflation have on interest rates and exchange rates? i. 1. Briefly explain the three major types of international credit markets. 2. Briefly explain how ADKs work. j. What is the effect of multinational operations on capital budgeting decisions? k. To what extent do average capital structures vary across different countries?arrow_forwardDomino's Pizza: Franchise segment return on investment Domino's Pizza, Inc. is the second-largest pizza chain in the world. In the United States, Dominos has 377 company-owned restaurants and 4,690 franchised restaurants. In addition, Domino's lias a supply chain that manufactures and delivers dough and other food products to all the domestic restaurants. Franchisees are required to purchase food products from the Domino's supply chain as part of their franchise agreement. Thus, in the United States, Domino's has three segments: Company-Owned Restaurants, Franchised Restaurants, and Supply Chain. Operating data for these three segments in the United States are as follows (in millions): Company-Owned Restaurants Franchised Restaurants Supply Chain Sales 348 230 1,262 Cost of sales 267 1,132 General and administrative expenses 25 125 100 Invested assets 32 30 146 Allocation to segments assumed Allocation between Company-Owned and Franchised assumed A. Determine the income from operations for each segment. B. Determine the profit margin for each segment. (Round percentages to one decimal place.) C. Determine the investment turnover for each segment. (Round to one decimal place.) D. Use the DuPont formula to determine the return on investment for each segment. (Round to nearest whole percent.) E. Explain Dominos business model and how it is related to ROI in each segment.arrow_forward
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