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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 the
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