Reference no: EM132418514

Problem: A multinational corporation established a division in a South American country as a subsidiary corporation, with an initial investment in total assets of 13 million CU's (the local currency is CU's), which cost the company $3,250,000 Canadian at the time. The company sent an experienced manager to run the division, and gave her a target of 13% required rate of return, promising a bonus if this was met and/or exceeded.

After one year, the subsidiary manager was pleased to report a 20% ROI.

You have been able to determine the following data pertaining to the subsidiary:

• Exchange rate at end of year was 8 CU's to 1 Cdn dollar
• Operating income was earned evenly throughout the year
• The exchange rate changed approximately evenly throughout the year

Required:

Question 1: Calculate the subsidiary's income in CU's.

Question 2: Calculate the subsidiary's return on investment in Canadian dollars.

Question 3: Calculate the subsidiary's residual income in Canadian dollars.