Question

​Americo's Earnings and the Fall of the Dollar. Americo is a​ U.S.-based multinational manufacturing firm with ​ wholly-owned subsidiaries in​ Brazil, Germany, and​ China, in addition to domestic operations in the United States. Americo is traded on the NASDAQ. Americo currently has

641,000

shares outstanding. The basic operating characteristics of the various business units is as​ follows:  ​(Click on

the   

icon to import the table into a​ spreadsheet.)

Business Performance​ (000s)	U.S. Parent ​(US$)	Brazilian Subsidiary ​(R$)	German Subsidiary ​(€​)	Chinese Subsidiary ​(¥​)
Earnings before taxes​ (EBT)	​$4,590	​R$6,260	€4,490	¥2,580
Corporate income tax rate	35​%	25​%	40​%	30​%
Average exchange rate for the period		​R$1.8423​/$	€0.6615​/$	¥7.8321​/$

Americo must pay corporate income tax in each country in which it currently has operations.

a. After deducting taxes in each​ country, what are​ Americo's consolidated earnings and consolidated earnings per share in U.S.​ dollars?

The dollar has experienced significant swings in value against most of the​ world's currencies in recent years.

b. What would be the impact on​ Americo's consolidated EPS if all foreign currencies were to appreciate

21%

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

21%

against the U.S.​ dollar?

a. After deducting taxes in each​ country, what are​ Americo's consolidated earnings and consolidated earnings per share in U.S.​ dollars?

Calculate the business performance per country​ below:  ​(Round to two decimal places. Round exchange rates to four decimal​ places.)

		U.S. Parent
Business Performance (000s)		Company
Earnings before taxes (local currency)	$
Less corporate income taxes	$
Net profits of individual subsidiary	$
Avg exchange rate for the period (fc/$)
Net profits of individual subsidiary	$

Answer 1

Business Performance​ (000s)	U.S. Parent	Brazilian	German	Chinese
​(US$)	Subsidiary	Subsidiary	Subsidiary
	​(R$)	​(€​)	​(¥​)
Earnings before taxes​ (EBT)	$4,590	6260	€ 4,490	2580
Corporate income tax rate	35%	25%	40%	30%
Less: Corporate income tax (in amount)               [EBT × tax rate]	1,606.50	R$1,565.00	€1,796.00	¥774.00
Net profits of individual subsidiary (EAT)                                       [EBT - Corporate tax]	2,983.50	R$4,695.00	€2,694.00	¥1,806.00
Average exchange rate for the period (fc/$)	–	​R$1.8423​/$	€0.6615​/$	¥7.8321​/$
Net profits of individual subsidiary (EAT) in US$ [EAT / Average exchange rate]	$   2,983.50	$     2,548.44	$    4,072.56	$      230.59
Americo’s consolidated earnings in US$ [total of all EAT, i.e., 2,983.50+2,548.44+4,072.56+230.59]	$   9,835.10	–	–	–
Consolidated earnings per share in US$ [9,835,100.00/641,000]	$         15.34	–	–	–

b. What would be the impact on​ Americo's consolidated EPS if all foreign currencies were to appreciate 21% against the U.S.​ dollar?

Business Performance​ (000s)	U.S. Parent	Brazilian	German	Chinese
​(US$)	Subsidiary	Subsidiary	Subsidiary
	​(R$)	​(€​)	​(¥​)
Earnings before taxes​ (EBT)	$4,590	6260	€ 4,490	2580
Corporate income tax rate	35%	25%	40%	30%
Less: Corporate income tax (in amount)                [EBT × tax rate]	1,606.50	1,565.00	1,796.00	774.00
Net profits of individual subsidiary (EAT)                                       [EBT - Corporate tax]	2,983.50	4,695.00	2,694.00	1,806.00
Average exchange rate for the period (fc/$) [existing exchange rate]	–	​R$1.8423​/$	€0.6615​/$	¥7.8321​/$
After 21% appreciation new exchange rate for the period (fc/$)                                        [existing exchange rate × (1 +0.21)]	–	R$2.2292/$	€0.8004/$	¥9.4768/$
Net profits of individual subsidiary (EAT) in US$ [EAT / Average exchange rate]	$2,983.50	$2,106.15	$3,365.75	$190.57
Americo's consolidated earnings in US$ [total of all EAT, i.e., 2,983.50+2,548.44+4,072.56+230.59]	$8,645.98
Consolidated earnings per share in US$ [8,645,980.00/641,000]	$13.49

c. What would be the impact on​ Americo's consolidated EPS if all foreign currencies were to depreciate 21% against the U.S.​ dollar?

Business Performance​ (000s)	U.S. Parent	Brazilian	German	Chinese
​(US$)	Subsidiary	Subsidiary	Subsidiary
	​(R$)	​(€​)	​(¥​)
Earnings before taxes​ (EBT)	$4,590	6260	€ 4,490	2580
Corporate income tax rate	35%	25%	40%	30%
Less: Corporate income tax (in amount)                [EBT × tax rate]	1,606.50	1,565.00	1,796.00	774.00
Net profits of individual subsidiary (EAT)                                       [EBT - Corporate tax]	2,983.50	4,695.00	2,694.00	1,806.00
Average exchange rate for the period (fc/$) [existing exchange rate]		​R$1.8423​/$	€0.6615​/$	¥7.8321​/$
After 21% depreciation new exchange rate for the period (fc/$)                                       [existing exchange rate × (1 +0.21)]		R$1.4554/$	€0.5226/$	¥6.1874/$
Net profits of individual subsidiary (EAT) in US$ [EAT / Average exchange rate]	$ 2,983.50	$3,225.88	$5,155.14	$291.89
Americo's consolidated earnings in US$ [total of all EAT, i.e., 2,983.50+2,548.44+4,072.56+230.59]	$11,656.41
Consolidated earnings per share in US$ [1,1656,410.00/641,000]	$18.18