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Question: The Grandlund Corporation manufactures similar

The Grandlund Corporation manufactures similar products in Canada and Norway. The Canadian and Norwegian operations are organized as decentralized divisions. The following information is available for 2016; ROI is calculated as operating income divided by total assets:
The Grandlund Corporation manufactures similar products in Canada and Norway. The Canadian and Norwegian operations are organized as decentralized divisions. The following information is available for 2016; ROI is calculated as operating income divided by total assets:


Both investments were made on December 31, 2015. The exchange rate at the time of Grandlund’s investment in Norway on December 31, 2015, was 6 kroner = $1. During 2016, the Norwegian krone increased steadily in value so that the exchange rate on December 31, 2016, is 7 kroner = $1. The average exchange rate during 2016 is [(6 + 7)/2] = 6.5 kroner = $1.

Required:
1. a. Calculate the Canadian division’s operating income for 2016.
b. Calculate the Norwegian division’s ROI for 2016 in kroner.
2. Top management wants to know which division earned a better ROI in 2016. What would you tell them? Explain your answer.
3. Which division do you think had the better RI performance? Explain your answer. The required rate of return on investment (calculated in Canadian dollars) is 12%.

Both investments were made on December 31, 2015. The exchange rate at the time of Grandlund’s investment in Norway on December 31, 2015, was 6 kroner = $1. During 2016, the Norwegian krone increased steadily in value so that the exchange rate on December 31, 2016, is 7 kroner = $1. The average exchange rate during 2016 is [(6 + 7)/2] = 6.5 kroner = $1. Required: 1. a. Calculate the Canadian division’s operating income for 2016. b. Calculate the Norwegian division’s ROI for 2016 in kroner. 2. Top management wants to know which division earned a better ROI in 2016. What would you tell them? Explain your answer. 3. Which division do you think had the better RI performance? Explain your answer. The required rate of return on investment (calculated in Canadian dollars) is 12%.





Transcribed Image Text:

Canadian Division Norwegian Division Operating income ? 8,100,000 kroner Total assets $8,000,000 52,500,000 kroner ROI 15% ?


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