Question: 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 U.S. Parent Brazilian Subsidiary German Subsidiary Chinese Subsidiary
(000s, local currency) Company (US$) (reais, R$) (euros, €) (yuan, ¥)
Earnings before taxes $4,500 R$6,250 €4,500 ¥2,500
(EBT)
Corporate income tax 35% 25% 40% 30%
rate
Average exchange - R$1.80/$ €0.7018/$ ¥7.750/$
rate for the period
Americo's EPS Sensitivity to Exchange Rates (B). Assume a major political crisis wracks Brazil, first affecting the value of the Brazilian reais and, subsequently, inducing an economic recession within the country. What would be the impact on Americo's consolidated EPS if, in addition to the fall in the value of the reais to R$3.00/$, earnings before taxes in Brazil fell as a result of the recession to R$5,8000,000?