OVERVIEW

This case study was about a company named blades incorporation who was involved in a
business of exporting Speedos “Rollers blades” to Thailand .It was not difficult for blades
Inc. to generate minimum revenue of 180,000 pairs of Speedos annually with a fixed
price of THB4, 594 per pair. Blades Inc import raw material rubber & plastic of only
72,000 pairs of Speedos from Thailand due to their excellent Quality & cost
differentiation, remaining material for 108000 pairs are purchased from home country.

The revenue generated from export to Thailand is stable however cost of goods sold
keeps on changing. The company has two options o invest the revenues

 One is to enhance the production of Speedos

 Other is to invest in U.S.

Ben Holt the CFO of the Blades Inc.takes in account to invest the excessive funds either
in USA at 8% interest rate or in Thailand at 15 %.( due to unstable economy).CFO asked
the analyst to give reasons for denying the proposal.

Q#1

One point of concern for you is that there is a tradeoff between higher interest rates in
Thailand and the delayed conversion of Baht into dollars. Explain what this means?

Ans: As a principle of investment we should invest there where the interest rates are high
and currency appreciates. So according to this principle the company should invest its
excessive funds in Thailand as the interest rates are high over there but this interest rate is
high due to economic instability so it means if we take the benefit of increased interest
rates we have to delay the investment for one year. If the company invests in USA it will
get the money immediately but at a lower interest rate & this is a tradeoff between the
currency and the interest rates.

Q#2

If the net Baht received from the Thailand operations are invested in Thailand, how will
US operations be affected? (Assume that Blades is currently paying 10% on dollar
borrowed and needs more financing for its firm)

Ans:

1
Working

Revenue 180,000*4594 = THB 826920000

CGS 72000*2871 = THB 206712000

Net Revenue from Thailand =THB 620208000

These net revenues received from thailand if again invested in thaliand instead of USA
then as it has already done financing form USA @ 10% so it would need further loan to
continue the operartions in USA.

Q#3 Costruct a spreadshhet to compare the cashflows rsulting from 2 plans.For this
question assume that allaa baht denominated cash flows are due today.compare the
choice of investing the funds versus using the funds to provide needed financing to the
firm?

Ans: Delayed conversion

F.V = P.V (1+i)n

=62028000 (1+0.15)1

=THB713239200

Now multiplying with exchange rate

=THB 713239200 * 0.022

After converting in $=$ 15691262

Immediate conversion

Multiplying with exchange rate

=THB620208000 * 0.024

After converting into $ =$ 14884992

F.V = P.V (1+i)n

F.V= 14884992 (1 + .08)

2
F.V after 1 year=$1607579