Deliverable Length: 900–1,100 words Details: Navigation Systems Inc. now has total worldwide revenues of over $500 million forecast for this coming year. You have operations in the United States of $300 million with a 10% ROS (return on sales, which is the same as net income on an income statement); operations in Germany of €100 million with anROSof 12%; and operations in Shanghai, China of 650 million Yuan with an ROS of 8%. You expect to repatriate all the ROS to the United States when available in 12 months. At your supervisor's request, do the following: Determine the spot and 12-month forward exchange rates, and determine any change in the ROS repatriated in 12 months based on exchange rates versus the current forecast. Describe the repatriation using each of the following: a spot transaction an outright forward a foreign-exchange swap Would there be any use or benefit in using a currency option or currency swaption? Describe each. Be sure to consider any U.S. corporate taxes that may be due and also whether there are any tax holidays in effect that may alter the taxes due on repatriation of the profits. How would you advise the company to handle the repatriation?

Deliverable Length: 900–1,100 words Details: Navigation Systems Inc. now has total worldwide revenues of over $500 million forecast for this coming year. You have operations in the United States of...

Deliverable Length:

900–1,100 words

Details:

Navigation Systems Inc. now has total worldwide revenues of over $500 million forecast for this coming year. You have operations in the United States of $300 million with a 10% ROS (return on sales, which is the same as net income on an income statement); operations in Germany of €100 million with anROSof 12%; and operations in Shanghai, China of 650 million Yuan with an ROS of 8%. You expect to repatriate all the ROS to the United States when available in 12 months.

At your supervisor's request, do the following:

Determine the spot and 12-month forward exchange rates, and determine any change in the ROS repatriated in 12 months based on exchange rates versus the current forecast.

Describe the repatriation using each of the following:
- a spot transaction
- an outright forward
- a foreign-exchange swap

Would there be any use or benefit in using a currency option or currency swaption? Describe each.

Be sure to consider any U.S. corporate taxes that may be due and also whether there are any tax holidays in effect that may alter the taxes due on repatriation of the profits.

How would you advise the company to handle the repatriation?

Answered Same DayDec 21, 2021

Answer To: Deliverable Length: 900–1,100 words Details: Navigation Systems Inc. now has total worldwide...

Robert answered on Dec 21 2021

118 Votes

Navigation Systems Inc. now has total worldwide revenues of over $500 million forecast for this coming year. The
forecasted revenue will flow in currencies like EUR and Yuan. Company looks to explore several options wither to
convert the cash flows now or repatriate it one 1 year down the line. The projected exposure and the revenue are
provided below.
Revenue of the firm 500.00 USD
Sales in US (mio) 300.00 USD
Income from Sales 10%
Net Income (mio) 30.00 USD
Sales in Germany (mio) 100.00 EUR
Income from Sales 12%
Net Income (mio) 12.00 EUR
Sales in China (mio) 650 Yuan
Income from Sales 8%
Net Income (mio) 52.00 Yuan
The current conversion rate in order to determine the repatriated inflows are:
Current Spot Rate
EUR USD 1.31
USD Yuan 6.31
Source: Reuters
Scenario 1: Income repatriated at Spot Price
If the income generated in EUR is transferred at spot rate to the home country in USD, the inflow would be as
follows:
Amount of USD earned by transferring 12 million equivalent EUR is '=12*1.3128 = 15.7536 Million USD
If the income generated in Yuan is transferred at spot rate to the home country in USD, the inflow would be as
follows:
Amount of USD earned by transferring 52 million equivalent Yuan is '=52/6.31 or 8.240887 Million USD
Total income generated in USD after repatriating all the funds =(9.140768+8.240887)= 23.99 Million USD
Scenario 2
Income repatriated at outright forward contract

If the income generated in EUR is transferred at forward rate by buying outright forward contract to the home
country in...

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Deliverable Length: 900–1,100 words Details: Navigation Systems Inc. now has total worldwide revenues of over $500 million forecast for this coming year. You have operations in the United States of...

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