Question

Americo Industries—2010 Problems 6–10 are based on Americo Industries. 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 (000s, local currency) U.S. Parent Company (US$) Brazilian Subsidiary (reais, R$) German Subsidiary (euros, €) Chinese Subsidiary (yuan, ¥) Earnings before taxes (EBT) $4,500 R$6,250 €4,500 ¥2,500 Corporate income tax rate 35% 25% 40% 30% Average exchange rate for the period — R$1.80/$ €0.7018/$ ¥7.750/$.

？？？Americo Industries’ Consolidate Earnings. 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?

b. What proportion of Americo’s consolidated earnings arise from each individual country?

c. What proportion of Americo’s consolidated earnings arise from outside the United States?

Answer 1

a.

		Americo	Brazil	German	Chinese		Total
a	EBIT	4500	6250	4500	2500
b	Exchange rate	1	1.8	0.7018	7.75
c=a/b	In US dollars	4,500.00	3,472.22	6,412.08	322.58		14,706.89

Consolidated earnings= 14706.89

b.

		Americo	Brazil	German	Chinese		Total
a	EBIT	4500	6250	4500	2500
b	Exchange rate	1	1.8	0.7018	7.75
c=a/b	In US dollars	4,500.00	3,472.22	6,412.08	322.58		14,706.89
	Proportion to total	30.60%	23.61%	43.60%	2.19%

c. From outside united states= 100%- 30.6%= 69.4%