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parent company establishes three wholly owned affiliates in countries x y and z its 543879

Parent Company establishes three wholly owned affiliates in countries X, Y, and Z. Its total investment in each of the respective affiliates at the beginning of the year together with year-end returns in parent currency (PC), appear here:

Subsidiary

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Total Assets

Returns

X

PC 1,000,000

PC 250,000

Y

PC 3,000,000

PC 900,000

Z

PC 1,500,000

PC 600,000

income, CAD480,000. Relevant exchange rates for the peso during the year were as follows:

Parent Company requires a return on its domestic investments of 10 percent and is evaluating the annual performance of its three foreign affiliates. To establish an appropriate performance benchmark, Parent Company subscribes to a country risk evaluation service that compiles an unweighted risk index for various countries around the world. The risk scores for each of the n countries are:

Country Risk Score (out of 60)

X

30

Y

21

Z

15

Other things being equal, the higher the score, the lower the country’s risk.

Required: Prepare an analysis for Parent Company’s management indicating which affiliate performed best.

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