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Problem 1.9 Americo's Earnings and The Fall of The Dollar: Appreciation Case

If foreign currencies appreciate 20% against the US dollar, Americo's consolidated EPS would increase from $14.77 to $16.83, a change of 13.9%. If foreign currencies depreciate 20% against the US dollar, Americo's consolidated EPS would decrease from $14.77 to $12.72, a change of -13.9%. The document shows the calculations of Americo's earnings and EPS under scenarios where foreign currencies appreciate or depreciate against the US dollar and the resulting impact on Americo's consolidated financial performance.

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237 views4 pages

Problem 1.9 Americo's Earnings and The Fall of The Dollar: Appreciation Case

If foreign currencies appreciate 20% against the US dollar, Americo's consolidated EPS would increase from $14.77 to $16.83, a change of 13.9%. If foreign currencies depreciate 20% against the US dollar, Americo's consolidated EPS would decrease from $14.77 to $12.72, a change of -13.9%. The document shows the calculations of Americo's earnings and EPS under scenarios where foreign currencies appreciate or depreciate against the US dollar and the resulting impact on Americo's consolidated financial performance.

Uploaded by

Samer
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Problem 1.

9 Americo's Earnings and the Fall of the Dollar

The U.S. 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?

Baseline exchange rate (fc/$) ----- 1.8000


Percent change (+ appreciation, - depreciation) 20%
New exchange rate (fc/$) 1.5000

Appreciation Case U.S. Parent Brazilian


Company Subsidiary
Business Performance (000s) (US$) (reais, R$)

Earnings before taxes, EBT (local currency) 4,500.00 6,250.00


Less corporate income taxes 35% (1,575.00) 25% (1,562.50) 40%
Net profits of individual subsidiary 2,925.00 4,687.50

Avg exchange rate for the period (fc/$) ------ 1.5000


Net profits of individual subsidiary (US$) $ 2,925.00 $ 3,125.00

Consolidated profits (total across units) $ 10,937.67


Total diluted shares outstanding (000s) 650.00

Baseline earnings per share (EPS) $ 14.77

EPS if foreign currencies appreciate $ 16.83 EPS has changed by:

Baseline exchange rate (fc/$) ----- 1.8000


Percent change (+ appreciation, - depreciation) -20%
New exchange rate (fc/$) 2.2500

Depreciation Case U.S. Parent Brazilian


Company Subsidiary
Business Performance (000s) (US$) (reais, R$)

Earnings before taxes, EBT (local currency) 4,500.00 6,250.00


Less corporate income taxes 35% (1,575.00) 25% (1,562.50) 40%
Net profits of individual subsidiary 2,925.00 4,687.50

Avg exchange rate for the period (fc/$) ------ 2.2500


Net profits of individual subsidiary (US$) $ 2,925.00 $ 2,083.33

Consolidated profits (total across units) $ 8,266.78


Total diluted shares outstanding (000s) 650.00

Baseline earnings per share (EPS) $ 14.77


EPS if foreign currencies depreciate $ 12.72 EPS has changed by:
cies in recent years.
ppreciate 20% against the U.S. dollar?
depreciate 20% against the U.S. dollar?

0.7018 7.7500
20% 20%
0.5848 6.4583

German Chinese
Subsidiary Subsidiary
(euros, €) (yuan, Y)

4,500.00 2,500.00
(1,800.00) 30% (750.00)
2,700.00 1,750.00

0.5848 6.4583
$ 4,616.70 $ 270.97

13.9%

0.7018 7.7500
-20% -20%
0.8773 9.6875

German Chinese
Subsidiary Subsidiary
(euros, €) (yuan, Y)

4,500.00 2,500.00
(1,800.00) 30% (750.00)
2,700.00 1,750.00

0.8773 9.6875
$ 3,077.80 $ 180.65
-13.9%

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