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%