Blade Chap 4

1460 Words Dec 30th, 2014 6 Pages
458 Part 4: Long-Term Asset and Liability Management

Consequently, Burton received only 6 million Swiss francs at the end of the year. Also assume that the spot rate of the franc at the end of the year was $.79. Determine the net present value of this project for Burton Co. if these conditions occur.
31. Hedge Decision on a Project. Carlotto Co. (a U.S. firm) will definitely receive 1 million British pounds in 1 year based on a business contract it has with the British government. Like most firms, Carlotto Co. is risk-averse and only takes risk when the potential benefits outweigh the risk. It has no other international business, and is considering various
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If it establishes the plant in Thailand, Blades will produce
108,000 of the 180,000 Entertainment Products Speedos at the plant during the last year of the agree- ment. Therefore, the new subsidiary would need to import 72,000 pairs of Speedos from the United States so that it can accommodate .its agreement with Enter- tainment Products. It will save the equivalent of 300 baht per pair in variable costs on the 108,000 pairs not previously manufactured in Thailand.
Entertainment Products has already declared its willingness to renew the agreement for another 3 years under identical terms. Because of recent delivery delays, however, it is willing to renew the agreement only if Blades has operations in Thailand. Moreover, if Blades has a subsidiary in Thailand, Entertainment

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Chapter 14: Multinational Capital Budgeting 459

Products will keep renewing the existing agreement as long as Blades operates in Thailand. If the agreement is renewed, Blades expects to sell a total of 300,000 pairs of Speedos annually during its first 2 years of operation

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