Case Problem: Blades, Inc. Essay

September 27, 2017 General Studies

1. One point of concern for you is that there is a trade-off between the higher involvement rates in Thailand and the delayed transition of tical into dollars. Explain what this means.

Answer: If the net baht-denominated hard currency flows are converted into dollars today. Blades is non capable to any future depreciation of the tical that would ensue in less dollar hard currency flows.

2. If the net tical received from the Thailand operation are invested in Thailand. how will U. S. operations be affected? ( Assume that Blades is presently paying 10 per centum on dollars borrowed. and needs more funding for its firm. )

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Answer: If the hard currency flows generated in Thailand are all used to back up U. S. operations. so Blades will hold to borrow extra financess in the U. S. ( or the international money market ) at an involvement rate of 10 per centum. For illustration. if the tical will deprecate by 10 per centum over the following twelvemonth. the Thai investing will render a output of approximately 5 per centum. while the company pays 10 per centum involvement on financess borrowed in the U. S. Since the financess could hold been converted into dollars instantly and used in the U. S. . the tical should likely be converted into dollars today to waive the extra ( expected ) involvement disbursals that would be incurred from this action.

3. Construct a spreadsheet that compares the hard currency flows ensuing from two programs. Under the first program. net baht-denominated hard currency flows ( received today ) will be invested in Thailand at 15 per centum for a annual period. after which the tical will be converted to dollars. The expected topographic point rate for the tical in one twelvemonth is about $ 0. 022 ( Ben Holt’s program ) . Under the 2nd program. net baht-denominated hard currency flows are converted to dollars instantly and invested in the U. S. for one twelvemonth at 8 per centum. For this inquiry. presume that all baht-denominated hard currency flows are due today. Does Holt’s program seem superior in footings of dollar hard currency flows available after one twelvemonth? Compare the pick of puting the financess versus utilizing the financess to supply needful funding to the house.

Answer: ( See spreadsheet attached. ) If Blades can borrow financess at an involvement rate below 8 per centum. it should put the extra financess generated in Thailand at 8 per centum and borrow financess at the lower involvement rate. If. nevertheless. Blades can borrow financess at an involvement rate above 8 per centum ( as is presently the instance with an involvement rate of 10 per centum ) . Blades should utilize the extra financess generated in Thailand to back up its operations instead than borrowing.

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