Economic breakeven quantity of demand, Management Information Sys

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.

Posted Date: 3/15/2013 7:06:35 AM | Location : United States







Related Discussions:- Economic breakeven quantity of demand, Assignment Help, Ask Question on Economic breakeven quantity of demand, Get Answer, Expert's Help, Economic breakeven quantity of demand Discussions

Write discussion on Economic breakeven quantity of demand
Your posts are moderated
Related Questions
System Maintenance Operations System maintenance is concerned with keeping the hardware and software working. This .involves the following operations: 20 Information System an

I have a test that''s gonna look like the test I''m taking tomorrow morning so I''ll need everything solved and answered asap

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

Provide an example of "Politics of Information" and how it can be used to facilitate organizational purposes? (Or in some instances, hinder them?)

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

Question: i) Briefly describe the major ICT infrastructure components. ii) Discuss the tools available to protect from Information Security breaches. iii) Describe the ma

Profile Construction The success of SDI service depends to a great extent on the construction of individual or group profiles. It may be stated that a search profile is a list

what are the pitfalla of mis ? discuss briefly?

design a context level , level 0 and level 1 diagram for an information system business process

INTRODUCTION TO INFORMATION  TECHNOLOGY: Technology has been defined as "systematic knowledge and action, usually of industrial processes but applicable to any recurrent activ