Está en la página 1de 2

Problem 1.

8 Luzon's EPS Sensitivity to Exchange Rates (B)
Assume that subsequent to the fall of the Brazilian reais versus the U.S. dollar, the Brazilian economy falls into recession. The result is a serious reduction in sales in the Brazilian subsidiary; sales in Brazil fall from R$6.25 million to R$5.8 million. Please fill in the blanks below. US Parent Company (US$) 4,500.00 (1,575.00) 2,925.00 -----2,925.00 9,602.22 650.00 14.77 Brazilian Subsidiary (reais, R$) 6,250.00 (1,562.50) 4,687.50 1.8000 2,604.17 German Subsidiary (euros, €) 4,500.00 (1,800.00) 2,700.00 0.7018 3,847.25 Chinese Subsidiary (yuan, Y) 2,500.00 (750.00) 1,750.00 7.7500 225.81

Business Performance (000s) Earnings before taxes, EBT (local currency) Less corporate income taxes Net profits of individual subsidiary Avg exchange rate for the period (fc/$) Net profits of individual subsidiary (US$) Consolidated profits (total across units) Total diluted shares outstanding (000s) Baseline earnings per share (EPS)

35%

25%

40%

30%

$ $

$

$

$

$

Brazilian reais falls in value against the U.S. dollar and Luzon's Brazilian sales decline US Parent Company (US$) 4,500.00 (1,575.00) 2,925.00 -----2,925.00 8,448.06 650.00 13.00 -12.0% Brazilian Subsidiary (reais, R$) 5,800.00 (1,450.00) 4,350.00 3.0000 1,450.00 German Subsidiary (euros, €) 4,500.00 (1,800.00) 2,700.00 0.7018 3,847.25 Chinese Subsidiary (yuan, Y) 2,500.00 (750.00) 1,750.00 7.7500 225.81

Business Performance (000s) Earnings before taxes, EBT (local currency) Less corporate income taxes Net profits of individual subsidiary Avg exchange rate for the period (fc/$) Net profits of individual subsidiary (US$) Consolidated profits (total across units) Total diluted shares outstanding (000s) Revised earnings per share (EPS) Percent change in EPS (compared to baseline):

35%

25%

40%

30%

$ $

$

$

$

$

00 (1.00 14.00 9.562. 20% must be written as 0.e.00 0.750.500. i.925.00 (1.8000 20% 1.2000 282.2 in these Excel formulas. €) 4. EBT (local currency) Less corporate income taxes Net profits of individual subsidiary Avg exchange rate for the period (fc/$) Net profits of individual subsidiary (US$) Consolidated profits (total across units) Total diluted shares outstanding (000s) Baseline earnings per share (EPS) EPS if foreign currencies appreciate ----- 1. EBT (local currency) Less corporate income taxes Net profits of individual subsidiary Avg exchange rate for the period (fc/$) Net profits of individual subsidiary (US$) Consolidated profits (total across units) Total diluted shares outstanding (000s) Baseline earnings per share (EPS) EPS if foreign currencies depreciate ----- 1. dollar? Please fill in all the blanks below.575.00 (750. '-' means depreciation) New exchange rate (fc/$) Appreciation Case Business Performance (000s) Earnings before taxes.562.50) 4.687.26 US Parent Company (US$) 4.700.00 (1.500.00 (1.5614 4.00 (750.21 0. then we would use: New exchange rate ($/fc) = Old Exchange Rate * (1 + Percent Change).00 -----2.4% Baseline exchange rate (fc/$) Percent change ('+' means appreciation.7018 -20% 0.500.00) 2.925. What would be the impact on Luzon’s consolidated EPS if all foreign currencies were to appreciate 20% or depreciate 20% against the U.77 35% 25% 40% 30% $ $ $ $ $ $ $ 17.00 8.50 2.500. €) 4.575.9 Luzon's Earnings and the Fall of the Dollar The U.3000 188.7500 20% 6.7500 -20% 9.e.06 7.14 0.8000 -20% 2.S.250. '-' means depreciation) New exchange rate (fc/$) Depreciation Case Business Performance (000s) Earnings before taxes. i.Problem 1. foreign currency price of one dollar. R$) 6.00 (1. IMPORTANT NOTE: If exchange rates (below) had been given as $/fc.255.250.6% .500.1600 Brazilian Subsidiary (reais.925.00 0.35 650.687.800.7018 20% 0.50 1.00 (1.750.04 7.271.809.S.800. R$) 6.34 Percent change in EPS (from baseline): 17.00 11.170.206.925.00 14.e. Baseline exchange rate (fc/$) Percent change ('+' means appreciation. dollar has experienced significant swings in value against most of the world's currencies in recent years.00) 2.50) 4.00 -----2.00) 1.5614 German Subsidiary (euros.1600 2.3000 Chinese Subsidiary (yuan.700.00 6.00) 2.77 35% 25% 40% 30% $ $ $ $ $ $ $ 13.2000 Chinese Subsidiary (yuan. Also remember to convert percents into decimals first: i.06 Percent change in EPS (from baseline): -11.4400 Brazilian Subsidiary (reais. we need to use: New exchange rate (fc/$) = Old Exchange Rate / (1 + Percent Change). Y) 2.489. However.500.00) 1.00) 2.53 650.17 US Parent Company (US$) 4. the dollar price of one unit of foreign currency.8422 3.8422 German Subsidiary (euros.4400 3. Y) 2. as the exchange rates are given as fc/$.