CONNECT 1 SEMESTER ACCESS CARD FOR CORPORATE FINANCE
11th Edition
ISBN: 9781259298738
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Textbook Question
Chapter 31, Problem 5CQ
International Risks At one point, Duracell International confirmed that it was planning to open battery manufacturing plants in China and India. Manufacturing in these countries allows Duracell to avoid import duties of between 30 and 35 percent that have made alkaline batteries prohibitively expensive for some consumers. What additional advantages might Duracell see in this proposal? What are some of the risks to Duracell?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Lidl makes a deal with SAP for a new specialised inventory software system. Once completed and installed the system is expected to deliver £750 m in savings for Lidl, but it is valueless to any other company. SAP needs to make an investment of £300 m to develop the system. They strike an initial agreement that will eventually make Lidl pay £500 m for the system. However, after the project is completed by SAP, Lidl seek to back out from the deal citing the pandemic as a reason. It insists that it will pay only £200 m for the system or the whole deal is off. What is the size/value of the hold-up problem in this example?
a.
-£100m.
b.
£300m.
c.
£500m.
d.
£200m.
Davao has a potential foreign customer that has offered to buy 1,500 tons at P450 per ton. Assume that all of Davao’s costs would be at the same levels and rates as last year. What net income after taxes would Davao make if it took this order and rejected some business from regular customers so as not to exceed capacity?
Without prejudice to your answers to previous questions, and assume that Davao plans to market its product in a new territory. Davao estimates that an advertising and promotion program costing P61,500 annually would need to be undertaken for the next two or three years. In addition, a P25 per ton sales commission over and above the current commission to the sales force in the new territory would be required. How many tons would have to be sold in the new territory to maintain Davao’s current after-tax income of P94,500?
If the sales volume is estimated to be 2,100 tons in the next year, and if the prices and costs stay at the same levels and amounts next year, the…
Due to rising labor costs in Malaysia, Domain Computer, based in Singapore, is considering shifting part of its production facilities from Malaysia to an emerging market, Vietnam, to better integrate its supply chain in the South east Asia region.
John Lawson, the CFO of the company, estimates that Domain Computer needs to invest USD735,000 to acquire an existing factory in Vietnam and another USD285,000 in renovations and installation of new machineries. The cost of training new workers is estimated to be USD310,000. He believes that the new factory will lead to an estimated USD928,000 savings in labor costs and another USD417,000 savings in logistics expenses.
Required:
Use cost-benefit analysis to recommend whether Domain Computer should shift parts of its production facilities from Malaysia to Vietnam. Explain your answer. You are required to write 500 to 800 words.
( Currently I have completed my Cost-benefit analysis; but I am confused as to how to use PESTLE's analysis with…
Chapter 31 Solutions
CONNECT 1 SEMESTER ACCESS CARD FOR CORPORATE FINANCE
Ch. 31 - Spot and Forward Rates Suppose the exchange rate...Ch. 31 - Prob. 2CQCh. 31 - Prob. 3CQCh. 31 - Prob. 4CQCh. 31 - International Risks At one point, Duracell...Ch. 31 - Multinational Corporations Given that many...Ch. 31 - Prob. 7CQCh. 31 - Exchange Rate Movements Some countries encourage...Ch. 31 - Prob. 9CQCh. 31 - Exchange Rate Risk If you are an exporter who must...
Ch. 31 - International Capital Budgeting Suppose it is your...Ch. 31 - International Capital Budgeting An investment in a...Ch. 31 - International Borrowing If a U.S. firm raises...Ch. 31 - International Investment If financial markets arc...Ch. 31 - Using Exchange Rates Take a look back at Figure 3...Ch. 31 - Prob. 2QPCh. 31 - Prob. 3QPCh. 31 - Using Spot and Forward Exchange Rates Suppose the...Ch. 31 - Prob. 5QPCh. 31 - Prob. 6QPCh. 31 - Interest Rates and Arbitrage The treasurer of a...Ch. 31 - Inflation and Exchange Rates Suppose the current...Ch. 31 - Exchange Rate Risk Suppose your company imports...Ch. 31 - Prob. 10QPCh. 31 - The International Fisher Effect You observe that...Ch. 31 - Prob. 12QPCh. 31 - Prob. 13QPCh. 31 - Capital Budgeting Lakonishok Equipment has an...Ch. 31 - Capital Budgeting You are evaluating a proposed...Ch. 31 - Prob. 16QPCh. 31 - Prob. 17QPCh. 31 - Using the Exact International Fisher Effect From...Ch. 31 - Prob. 1MCCh. 31 - What will happen to the companys profits if the...Ch. 31 - Ignoring taxes, what are East Coast Yachts...Ch. 31 - How can the company hedge its exchange rate risk?...Ch. 31 - Taking all factors into account, should the...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Global Reach, Inc., is considering opening a new warehouse to serve the Southwest region. Darnell Moore, controller for Global Reach, has been reading about the advantages of foreign trade zones. He wonders if locating in one would be of benefit to his company, which imports about 90 percent of its merchandise (e.g., chess sets from the Philippines, jewelry from Thailand, pottery from Mexico, etc.). Darnell estimates that the new warehouse will store imported merchandise costing about 16.78 million per year. Inventory shrinkage at the warehouse (due to breakage and mishandling) is about 8 percent of the total. The average tariff rate on these imports is 5.5 percent. Required: 1. If Global Reach locates the warehouse in a foreign trade zone, how much will be saved in tariffs? Why? (Round your answer to the nearest dollar.) 2. Suppose that, on average, the merchandise stays in a Global Reach warehouse for nine months before shipment to retailers. Carrying cost for Global Reach is 6 percent per year. If Global Reach locates the warehouse in a foreign trade zone, how much will be saved in carrying costs? What will the total tariff-related savings be? (Round your answers to the nearest dollar.) 3. Suppose that the shifting economic situation leads to a new tariff rate of 13 percent, and a new carrying cost of 6.5 percent per year. To combat these increases, Global Reach has instituted a total quality program emphasizing reducing shrinkage. The new shrinkage rate is 7 percent. Given this new information, if Global Reach locates the warehouse in a foreign trade zone, how much will be saved in carrying costs? What will the total tariff-related savings be? (Round your answers to the nearest dollar.)arrow_forwardAsiaChem is a pharmaceutical company in Asia. The company’s research department has identified a compound that can cure a common cold without any side effects. Unfortunately, the manufacture of this compound requires the company to invest heavily in a high technology factory which will use a number of new techniques, some of which are unproven. The company will also need to recruit and retain the services of a number of eminent scientists, each of whom is both vital to the project and would be irreplaceable. Financing this project will require the company to borrow heavily. The company is unlikely to survive as an independent entity if it invests in this project and it fails. The directors have been advised that there is at least a 50% chance of a catastrophic failure. The project has a beta of 0.5. The risk free rate is 3% and the equity risk premium is 8%. The project offers an estimated return of 24%. Required: I. Calculate the required rate of return for the project. II.…arrow_forwardHello, EagleEye Company, a manufacturer of digital cameras, is considering entry into the digital binocular market. EagleEye Company currently does not produce binoculars of any style, so this venture would require a careful analysis of relevant manufacturing costs to correctly assess its ability to compete. The market price for this binocular style is well established at $134 per unit. EagleEye has enough square footage in its plant to accommodate the new production line, although several pieces of new equipment would be required, their estimated cost is $4,750,000. EagleEye requires a minimum ROI of 12% on any product line investment and estimates that if it enters this market with its digital binocular product at the prevailing market price, it is confident of its ability to sell 17,000 units per year. Question: Identify the costs that EagleEye Company would consider for decision of entering the digital binocular market. (Select all that apply). 1. Raw materials and direct…arrow_forward
- In the United States, many business firms in the cigarette industry joined with the government in a settlement of liability claims. Under the tentative agreement, the industry would curb advertising and pay the equivalent of about $15 billion per year (for smoking-related state Medicaid expenses) in exchange for protection against smoker lawsuits. a) Before the settlement, a leading cigarette manufacturer estimated its marginal cost at $1.00 per pack and its elasticity of demand at -2. What is its optimal price? The firm’s share of the industry payment (based on its historic market share) will raise its average total cost per pack by $.60. What effect will this have on its optimal price? b) A marketing manager suggests that the firm should offer price discounts to the company’s longterm, older, most-loyal (addicted?) customers. Do you agree? Explain carefully. c) In the past, anti-smoking information campaigns have had some limited success in reducing smoking. What price reaction…arrow_forwardFomguard LLC of South Korea developed a hightech fiber-optic fencing mesh (FOM) that contains embedded sensors that can differentiate between human and animal contact. In an effort to curtail illegal entry into the United States, a FOM fence has been proposed for some sections of the U.S. border with Canada. The cost for erecting the fence in year 1 is expected to be $7 million, decreasing by $500,000 each year through year 5. At an interest rate of 10% per year, what is the equivalent uniform annual cost of the fence for years 1 to 5?arrow_forwardB&G Co. is planning a project in France. It would lease space for one year in a shopping mall to sell expensive clothes manufactured in the U.S. The project would end in one year, when all earnings would be remitted to B&G Co. Assume that no additional corporate taxes are incurred beyond those imposed by the French government. Since B&G Co. would rent space, it would not have any long-term assets in France, and expects the salvage (terminal) value of the project to be about zero. Assume that the project’s required rate of return is 25 percent. Also assume that the initial outlay required by the parent to fill the store with clothes is $320,000. The pretax earnings are expected to the €650,000 at the end of one year. The euro is expected to be worth $1.21 at the end of one year, when the after-tax earnings are converted to dollars and remitted to the United States. The following forms of country risk, which are independent, must be considered: * The French economy may weaken…arrow_forward
- Financial Risk Havering Ltd is involved in the manufacture of high technology computer chips and is based in Stockton-on-Tees. It is considered to be one of the UK’s premier high-tech companies and have proved to be exceptionally profitable in the past. You have ascertained the following information about Havering Ltd's activities. It imports most of its raw materials from Japan. Its Japanese supplier insists on prompt payments, in Yen. All other costs are incurred locally and paid for in sterling. The major customers of Havering Ltd are spread throughout the world, although 45% of their revenue originates in Western Europe, where local companies insist on being billed in Euro’s and require 90- day credit terms. A major customer based in Iceland has fallen behind in payment of the amounts it owes to Havering Ltd. Havering Ltd have invested heavily in modern plant, most of which was financed by loans in sterling. Loans are primarily a mixture of floating rate instruments, although there…arrow_forwardHoward Weiss, Inc., is considering building a sensitive new radiation scanning device. His managers believe that there is a probability of 0.4 that the ATR Co. will come out with a competitive product. If Weiss adds an assembly line for the product and ATR Co does not follow with a competitive product, Weiss's expected profit is $40,000, if Weiss adds an assembly line and ATR follows suit, Weiss still expects $10,000 profit. If Weiss adds a new plant addition and ATR does not produce a competitive product, Weiss expects a profit of $600,000, if ATR does compete for this market, Weiss expects a loss of $100,000 a) Determine the EMV of each decision. b) Compute the expected value of perfect information.arrow_forwardAll amounts are in $AUD. In order to satisfy the sharp increase in demand KGN is evaluatinginvesting in a “Mega Warehouse” project in Australia. KGN has already identified two existing warehouses. In order to mitigate the risk and assess the fit for purpose of these facilities KGN asked “Axiom Ltd.” to conduct a technical due diligence. “Axiom Ltd.” is asking $100,000 as a fixed fee for its consulting services. Project A has an initial outlay of dollars $150 million and Project B has an initial outlay of $85 million. Project A will generate additional revenues of 45 million starting at the end of year 1 until the end of year 10. It will also incur additional working capital expenses of $1million immediately, this working capital will be recovered at the end of the project. Project B will generate additional revenues of 25 million starting at the end of year 1 until the end of year 10. It will also incur additional working capital expenses of $2million immediately, this working capital…arrow_forward
- All amounts are in $AUD. In order to satisfy the sharp increase in demand KGN is evaluatinginvesting in a “Mega Warehouse” project in Australia. KGN has already identified two existing warehouses. In order to mitigate the risk and assess the fit for purpose of these facilities KGN asked “Axiom Ltd.” to conduct a technical due diligence. “Axiom Ltd.” is asking $100,000 as a fixed fee for its consulting services. Project A has an initial outlay of dollars $150 million and Project B has an initial outlay of $85 million. Project A will generate additional revenues of 45 million starting at the end of year 1 until the end of year 10. It will also incur additional working capital expenses of $1million immediately, this working capital will be recovered at the end of the project. Project B will generate additional revenues of 25 million starting at the end of year 1 until the end of year 10. It will also incur additional working capital expenses of $2million immediately, this working capital…arrow_forwardAn energy firm is betting on wind power's long-term viability in Texas and plans to erect what would be one of the biggest wind farms in the world with 200 wind turbines costing some $1.69 million each. Energy companies investing in wind power are also expecting governments to toughen rules relating to traditional energy sources, as part of long-term efforts to reduce global-warming emissions. But generating power from wind is not profitable for companies without government tax breaks. The following financial and technical data have been compiled for furtherconsideration: • Number of wind turbines to be built: 200 units• Power capacity: 310,000 kW• Capital investment required: $338,000,000• Project life: 20 years• Salvage value of the wind turbines after 20 years: $0• Annual net cash flows {after all deductions): $41,391,160According to the data provided, answer the following questions:(a) What is the projected IRR on this investment?(b) If the company's MARR is known to be 10%, is the…arrow_forwardExplain why proponents of LIFO argue that it provides a better match of revenue and expenses. In what situations would it not provide a better match? Be specific. The management of the Esquire Oil Company believes that the wholesale price of heating oil that they sell to homeowners will increase again as the result of increased political problems in the Middle East. The company is currently paying $0.80 per gallon. If they are willing to enter an agreement in November 2021 to purchase a million gallons of heating oil during the winter of 2022, their supplier will guarantee the price at $0.80 per gallon. However, if the winter is a mild one, Esquire would not be able to sell a million gallons unless they reduced their retail price and thereby increase the risk of a loss for the year. On the other hand, if the wholesale price did increase substantially, they would be in a favorable position with respect to their competitors. The company’s fiscal year-end is December 31. Discuss the…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Foreign Exchange Risks; Author: Kaplan UK;https://www.youtube.com/watch?v=ne1dYl3WifM;License: Standard Youtube License