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Operating characteristics of the various business units

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Question: Americo is a U.S.-based multinational manufacturing firm with whollyowned subsidiaries in Brazil, Germany, and China, in addition to domestic operations in the United States. Americo is traded on the NASDAQ. Americo currently has 650,000 shares outstanding. The basic operating characteristics of the various business units is as follows:

Business Performance             U.S. Parent              Brazilian Subsidiary            German Subsidiary         Chinese Subsidiary
(000s, local currency)          Company (US$)                (reais, R$)                             (euros, €)                         (yuan, ¥)

Earnings before taxes                $4,500                        R$6,250                            €4,500                          ¥2,500
(EBT)

Corporate income tax                  35%                            25%                                 40%                             30%
rate

Average exchange                       -                             R$1.80/$                           €0.7018/$                       ¥7.750/$               
rate for the period

Americo's Earnings and the Fall of the Dollar. The dollar has experienced significant swings in value against most of the world's currencies in recent years.

a. What would be the impact on Americo's consolidated EPS if all foreign currencies were to appreciate 20% against the U.S. dollar?

b. What would be the impact on Americo's consolidated EPS if all foreign currencies were to depreciate 20% against the U.S. dollar?

Reference no: EM131679445

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