- 23 - lease would have been $289,050. If at the end of FY 1984 WFGI's officers had believed the lease to be worth about $250,000 at current exchange rates and they had correctly predicted the level of exchange rates as of September 30, 1987, when the lease was ultimately assigned, they would have expected the disposition of the lease to yield $378,000; if they had anticipated that the exchange rate would return to its historic levels, they would have expected approximately $100,000 more ($464,200 at 5.0 FF per U.S. dollar). Exchange rates also affected the French subsidiary's ability to repay the intercompany debts out of current cash flows. According to the consolidated financial statements for the Wally Findlay Group, the French subsidiary's cumulative loss on currency exchange transactions between FY 1981 and FY 1984 was $562,000, a loss of repayment capacity corresponding to more than half of the intercompany account balance by the end of FY 1984. At the rate of exchange prevailing at that time, to pay off this balance required FF 9,854,270. If the franc returned to a level of 5.0, only FF 5,307,125 would have been needed. These numerical exercises are intended only to suggest how important exchange rate expectations would have been for a reasonable determination of the collectibility of the intercompany debt. There is no evidence that the officers of WFGI incorporated any explicit exchange rate forecast into their assessment of thePage: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Next
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