Economic breakeven quantity of demand, Management Information Sys

Assignment Help:

XYZ Electronics has an alternative method of producing the modified bearings.  It has an opportunity to build a small manufacturing facility in a foreign country and build the parts from scratch.  Because of lower material and labor costs, the cost to manufacture each bearing from scratch is $50, but annual fixed costs are $25k.  The cost for setting up this production method is $100k, all of which is for plant & equipment.  It still needs $5k worth of inventory that is recovered at the end of the project.  The manufacturing facility and its equipment can be sold for $60,000 in 3 years' time, which is mostly the value of the land.  The completed units will have to be shipped home (insured) at a flat rate cost of $5/unit.  The quality of the product is expected to be consistent with the domestically produced units and can be sold for $795/unit.  The tax rate in the foreign country is 15%.  There is no tax treaty so cash flows that are repatriated are subject to the domestic tax rate also.  (The foreign country does not have a tax credit for capital investments.)  The salvage value quantity is exempt from repatriation taxes.  The foreign country also uses straight-line depreciation over 3 years.  
The initial investment cost is called in current dollars, but future cash flows are subject to exchange rate risk.  This risk is reflected in the needed rate of return by adding 3% to the domestic needed rate of return.

1.    Search the economic breakeven quantity of demand.  (Where NPV equals zero.)

2.    Assume that futures contracts suddenly become available so that exchange rate risk can be eliminated.  Find the break-even quantity demanded under this scenario.

3.    Is it better to produce domestically or in the foreign country?  Describe briefly.

4.    In this example, the existence of futures contracts would be classified as what?

5.    Declare some of the assumptions of capital budgeting, especially in the context of international financial management.


Related Discussions:- Economic breakeven quantity of demand

Linear Programing, Managerial Decision Support – Linear Programming (10pts)...

Managerial Decision Support – Linear Programming (10pts) The advertising director for Diversity Paint and Supply, a chain of four retail stores on Chicago’s North Side, is consider

Internet - capabilities and services, Internet and its Capabilities and Ser...

Internet and its Capabilities and Services In this Unit, an attempt has been made to expose you to the concept of the Internet, its capabilities and services.  It has been

Citation indexes, Citation indexes   Citation indexing is one of the me...

Citation indexes   Citation indexing is one of the means of producing an effective index by the effective use of computer for arranging and reformatting entries. The input to t

World wide web, The World Wide Web (WWW or W3)   The WWW is the multime...

The World Wide Web (WWW or W3)   The WWW is the multimedia part of the Internet displaying a hyper text type of structure and search facilities. It was first developed for shar

Online public access catalogues, Online Public Access Catalogues (OPACs)  ...

Online Public Access Catalogues (OPACs)   Some of the cataloguing systems provided by software vendors usually contain some default OPAC program which can be utilised by the su

What factors may lead to failure of a dot.com organisation, Question: (...

Question: (a) By making use of examples of your choice distinguish between Transaction Processing Systems, Management Information Systems, Decision Support Systems. (b) W

What is business process reengineering, Question : i) What is Business ...

Question : i) What is Business Process Reengineering and describe its relevance to an organization. ii) What are Net marketplaces and explain how do they operate iii) Wha

Raising security awareness amongst its employees?, QUESTION Modern soci...

QUESTION Modern society is highly dependent on key critical systems either physical or technology based. They have become more vital as the information age has developed and so

.information management, critically discuss how the components and activiti...

critically discuss how the components and activities of an information system function as an intergrated system. include in your discusion the consequence of not having any one com

Explain briefly any five benefits of using multimedia, Problem: (a) Des...

Problem: (a) Describe the term ‘Multimedia'. (b) Briefly describe two main reasons to use ‘Compression' in Multimedia. (c) All Multimedia development teams should have

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd