Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 21, Problem 5M
Summary Introduction
Case synopsis:
Person MS and Person TS are the owners of Company SS and they were discussing with the light aircraft dealer in Country M on selling their planes in Continent E. Person JJ the dealer wishes to add the Company SS to his present retail lines.
Characters in the case:
- Person MS
- Person TS
- Person JJ
- Continent E
- Country M
- Company SS
- Person CG
Adequate information:
- Person TS and Person MS are confident that the company can handle the additional volume with their current facilities
- Person TS and Person MS are not sure about their potential financial risk in selling their planes in Continent E
- Person MS and Person TS decides to ask their financial analyst Person CG to prepare a study on the proposed multinational sales
To determine: Whether the company has to continue with the international sales.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
National Restaurant Supply, Inc., sells restaurant equipment and supplies throughout most of the United States. Management is considering adding a machine that makes sorbet to its line of ice cream making machines. Management will negotiate the purchase price of the sorbet machine with its Swedish manufacturer.
Management of National Restaurant Supply believes the sorbet machine can be sold to its customers in the United States for $4,950. At that price, annual sales of the sorbet machine should be 100 units. If the sorbet machine is added to National Restaurant Supply’s product lines, the company will have to invest $600,000 in inventories and special warehouse fixtures. The variable cost of selling the sorbet machines would be $650 per machine.
Required:
1. If National Restaurant Supply requires a 15% return on investment (ROI), what is the maximum amount the company would be willing to pay the Swedish manufacturer for the sorbet machines?
2. The manager who is flying to Sweden…
You
SUckaroo CC. a ho(keyequipment business, estimates that it will sell 3 400 pairs of shin pads per year from a distributor in Spain. Each pair costs R 195.00 to purchase and R18.00 in freight charges. The company borrows funds at an interest rate of 9% per annum to finance inventories. Stickaroo ccs purchasing agent has calculated that it costs R 472.00 to place an order for each pair of shin pads and that the holding cost is R 6.00 for each pair. Calculate the eoq.
You are the purchasing agent for Air France and you are planning to purchase 10 airplanes from Boeing. The planes cost $100 million each and will not be delivered for three years. The contract states that payment will be in US dollars upon delivery. At the time the order was placed, the Euro was valued at $1.15. You anticipate the Euro will be valued at $1.45 at the time of delivery. Is this a good deal for Air France or not? Explain in terms of how much Air France will pay in US dollars at the time of delivery.
Chapter 21 Solutions
Fundamentals of Corporate Finance
Ch. 21.1 - What are the differences between a Eurobond and a...Ch. 21.1 - Prob. 21.1BCQCh. 21.2 - Prob. 21.2ACQCh. 21.2 - Prob. 21.2BCQCh. 21.2 - Prob. 21.2CCQCh. 21.3 - Prob. 21.3ACQCh. 21.3 - Prob. 21.3BCQCh. 21.4 - Prob. 21.4ACQCh. 21.4 - Prob. 21.4BCQCh. 21.5 - What financial complications arise in...
Ch. 21.5 - Prob. 21.5BCQCh. 21.6 - Prob. 21.6ACQCh. 21.6 - How can a firm hedge short-run exchange rate risk?...Ch. 21.7 - Prob. 21.7ACQCh. 21.7 - Prob. 21.7BCQCh. 21 - Prob. 21.1CTFCh. 21 - Prob. 1CRCTCh. 21 - Prob. 2CRCTCh. 21 - Prob. 3CRCTCh. 21 - Prob. 4CRCTCh. 21 - Prob. 5CRCTCh. 21 - Prob. 6CRCTCh. 21 - Prob. 7CRCTCh. 21 - Prob. 8CRCTCh. 21 - Prob. 9CRCTCh. 21 - Prob. 10CRCTCh. 21 - Prob. 1QPCh. 21 - Prob. 2QPCh. 21 - Prob. 3QPCh. 21 - Using Spot and Forward Exchange Rates [LO1]...Ch. 21 - Cross-Rates and Arbitrage [LO1] Suppose the...Ch. 21 - Interest Rate Parity [LO2] Use Figure 21.1 to...Ch. 21 - Interest Rates and Arbitrage [LO2] The treasurer...Ch. 21 - Prob. 8QPCh. 21 - Prob. 9QPCh. 21 - Prob. 10QPCh. 21 - Prob. 11QPCh. 21 - Prob. 12QPCh. 21 - Prob. 13QPCh. 21 - Capital Budgeting [LO2] Lakonishok Equipment has...Ch. 21 - Capital Budgeting [LO2] You are evaluating a...Ch. 21 - Prob. 16QPCh. 21 - Prob. 17QPCh. 21 - Using the Exact International Fisher Effect [LO2]...Ch. 21 - SS Air Goes International Mark Sexton and Todd...Ch. 21 - SS Air Goes International Mark Sexton and Todd...Ch. 21 - SS Air Goes International Mark Sexton and Todd...Ch. 21 - SS Air Goes International Mark Sexton and Todd...Ch. 21 - Prob. 5M
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_forwardWinnebagel pic currently sells 30,000 mobile caravans per year at E52,000 each and 12,000 luxury stationary caravans per year at £91,000 each. The company wants to introduce a new caravanette to fill out its product line; it hopes to sell 19,000 of these caravanettes per year at £13,000 each. An independent consultant has determined that if Winnebagel introduces the new caravanettes, it should boost the sales of its existing luxury stationary caravans by 4,500 units per year, and reduce the sales of its mobile caravans by 850 units per year. What is the amount to use as the annua sales figure when evaluating this project a) © £409,500,000 b) £44.200,000 E247.000,000 None e) £612,300,000.arrow_forwardThink back to the International Collections case in Assignment 5. Assume that the 60-day payment terms that you gave your buyer are typical, and that you will be required to carry up to $2,500,000.00 per month in accounts receivable for export sales. To be able to produce inventory for additional sales while while you carry 60 days of accounts receivable, you are going to need to find an outside source of additional export working capital. Discuss in detail two different options for financing export working capital to keep production going while you wait for payment from the last 60 days of sales.arrow_forward
- A luggage buyer plans a European buying trip to purchase $250,000 (cost value) of assorted travel packs. On the first stop in London, orders are placed for $92,000 (at cost) for an assortment of leather luggage, which will be priced at $180,000 retail. If the average markup is targeted at 52.0%, what markup percentage should be taken on the balance of the European orders?arrow_forwardInternational energy drink giant Energica Turkey's regional sales manager Hakan Çokbilir investigate the plans for the Middle East and plans to launch in Azerbaijan in 2021. The market price of the Company's plant in Turkey is determined to be $ 5 million. It causes the company to need a capital of $ 20 million in 2021 to shift the investment to Azerbaijan and to establish a new bottling factory and distribution channel. While the fixed expenses required for production, distribution and marketing as of 2021 are $ 3 million per year, 50 million liters of energy drink will be produced in the country at the end of each year. Variable costs arising from production and distribution will be 12 Cent per liter. According to the policy pursued, the expected minimum return rate of the company is accepted as 6%. The income from sales is expected to be 35 cents per liter. Bottling factories are expected to serve almost forever, so all unit costs and sales revenues are expected to remain constant…arrow_forwardThe selling price of imported olive oil is $20 per case. Your cost is 15 Euros per case, and the exchange rate is currently 1.25, so it takes 1.25 Euros to buy $1. Your argest customer has ordered 15,000 cases of olive oil. How much is the pretax profit for this transaction? a. $120,000 b. $100,000 c. $90,000 d. $80,000 e. $60,000arrow_forward
- RG Motors has been approached by a new customer with an offer to purchase 5,000 units of its hand-free, Wi-Fi-enabled automotive model – the SMART, at a price of RM18,000 per automobile. RG’s other sales would not be affected by this new customer offer. RG normally produces 100,000 units of its SMART model per year but only plans to produce and sell 90,000 units in the coming year. The normal sales price is RM35,000 per SMART. Unit cost information for the normal level of activity is as follows: Table 7: Production Costs Total Cost RM Direct materials 10,000 Direct labor 2,000 Variable overhead 4,000 Fixed overhead 8,000 Total 24,000 Fixed overhead will not be affected by whether or not the special order is accepted. Required: (i) List the relevant costs and benefits of the two alternatives of the special order. (ii) Propose whether operating income increase or decrease if the order is accepted with calculation details.arrow_forwardRG Motors has been approached by a new customer with an offer to purchase 5,000 units of its hand-free, Wi-Fi-enabled automotive model – the SMART, at a price of RM18,000 per automobile. RG’s other sales would not be affected by this new customer offer. RG normally produces 100,000 units of its SMART model per year but only plans to produce and sell 90,000 units in the coming year. The normal sales price is RM35,000 per SMART. Unit cost information for the normal level of activity is as follows: Total CostDirect materials 10,000Direct labor 2,000Variable overhead 4,000Fixed overhead 8,000Total 24,000 Fixed overhead will not be affected by whether or not the special order is accepted. requird (i) List the relevant costs and benefits of the two alternatives of the special order. (ii) Propose whether operating income increase or decrease if the order is accepted with calculation details.arrow_forwardCitron buys a counterfeit production line at a price of €200,000. However, the cash flow that will result from the three-year production of the product depends on the conditions of demand in the plastics industry. Specifically, 3 versions of demand are formed, the high, the normal and the low, with equalprobabilities for any eventuality. Demand is expressed as follows (in euro): Demand / Year 1st 2nd 3rd High 100.000€ 120.000€ 130.000€ Normal 75.000€ 80.000€ 95.000€ Low 65.000€ 70.000€ 82.000€ a) How will this investment be valued if the equipment has a residual value of € 20,000 at the end of the 3rd year, the market rate for such activities is set at 8% and the risk-free rate at 5%?arrow_forward
- International energy drink giant Energica America's regional sales manager Will Smith investigate the plans for the Middle East and plans to launch in Azerbaijan in 2021. The market price of the Company's plant in America is determined to be $ 5 million. It causes the company to need a capital of $ 20 million in 2021 to shift the investment to Azerbaijan and to establish a new bottling factory and distribution channel. While the fixed expenses required for production, distribution and marketing as of 2021 are $ 3 million per year, 50 million liters of energy drink will be produced in the country at the end of each year. Variable costs arising from production and distribution will be 12 Cent per liter. According to the policy pursued, the expected minimum return rate of the company is accepted as 6%. The income from sales is expected to be 35 cents per liter. Bottling factories are expected to serve almost forever, so all unit costs and sales revenues are expected to remain constant…arrow_forwardYour options for shipping S100,000 of machine parts from Hamilton to Malaysia, are: 1) 2) The second option will take only 20 days. You are paid via a letter of credit the day the parts arrive. Your holding cost is estimated at use a ship that will take 30 days at a cost of truck the parts to Vancouver and then ship at a total cost of $3,800 or $4,500 10% of the value per year. a. Calculate the daily holding cost. Round to two decimal places. (if your answer is $90 then put 90.00) b. Calculate the difference in cost per day between shipping options. Round to two decimal places. (Round to 2 decimal points $82.19 put 82.19 or $100 put 100.00) Daily holding cost = Difference in cost/day in shipping options =arrow_forwardYour options for shipping s10.000 of machine parts from Hamilton to Malaysia, are: use a ship that will take 30 days at a cost of truck the parts to Vancouver and then ship at a total cost of 1) S3.00 or 2) The second option will take only 20 days. You are paid via a letter of credit the day the parts arrive. Your holding cost is estimated at $4,500 10% of the value per year. a. Calculate the daily holding cost. Round to two decimal places. (if your answer is S90 then put 90.00) b. Calculate the difference in cost per day between shipping options. Round to two decimal places. (Round to 2 decimal points S82.19 put 82.19 or $100 put 100.00) Daly holding cost Difference in costiday in shipping options =arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
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