Let S Consider Some Multinational Implications For Evaluating Investment Center (1)

Let’s consider some multinational implications for evaluating investment center manager performance.

Suppose Rojo Hotels builds a small hotel in Cancun. The investment represents the costs of the building and furnishings. Also assume the following:

1. Exchange rate at time of investment on Dec 31, 2011, is 10 pesos = $1.

2. The peso suffers a steady decline in value. The average exchange rate during 2012

is 12.5 pesos = $1.

3. The investment (total assets) in the hotel is 30,000,000 pesos.

4. The operating income of the hotel in 2012 is 6,000,000 pesos.

Management wants to compare ROI of Cancun to Pittsburgh (ROI = 17%). Ignore

depreciation.

a) Compute ROI in pesos.

b) Compute ROI in U.S. dollars. Consider carefully which exchange rates should be

used in the calculation. The rates should be reflective of the values being used to

make the calculation.

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