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Blades Inc Case of IFM

Blades Inc Case of IFM

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Published by imaal

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Published by: imaal on Apr 15, 2010
Copyright:Attribution Non-commercial


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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 bladesInc. 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 only72,000 pairs of Speedos from Thailand due to their excellent Quality & costdifferentiation, remaining material for 108000 pairs are purchased from home country.The revenue generated from export to Thailand is stable however cost of goods soldkeeps 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 askedthe analyst to give reasons for denying the proposal.
One point of concern for you is that there is a tradeoff between higher interest rates inThailand and the delayed conversion of Baht into dollars. Explain what this means?
As a principle of investment we should invest there where the interest rates are highand currency appreciates. So according to this principle the company should invest itsexcessive funds in Thailand as the interest rates are high over there but this interest rate ishigh due to economic instability so it means if we take the benefit of increased interestrates we have to delay the investment for one year. If the company invests in USA it willget the money immediately but at a lower interest rate & this is a tradeoff between thecurrency and the interest rates.
If the net Baht received from the Thailand operations are invested in Thailand, how willUS operations be affected? (Assume that Blades is currently paying 10% on dollar  borrowed and needs more financing for its firm)
Revenue 180,000*4594 = THB 826920000CGS72000*2871 = THB 206712000
Net Revenue from Thailand =THB 620208000
These net revenues received from thailand if again invested in thaliand instead of USAthen as it has already done financing form USA @ 10% so it would need further loan tocontinue the operartions in USA.
Costruct a spreadshhet to compare the cashflows rsulting from 2 plans.For thisquestion assume that allaa baht denominated cash flows are due today.compare thechoice of investing the funds versus using the funds to provide needed financing to thefirm?
Ans: Delayed conversionF.V = P.V (1+i)
=62028000 (1+0.15)
=THB713239200 Now multiplying with exchange rate =THB 713239200 * 0.022
After converting in $=$ 15691262Immediate conversion
Multiplying with exchange rate=THB620208000 * 0.024After converting into $ =$ 14884992
F.V = P.V (1+i)
F.V= 14884992 (1 + .08)2

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Ijlal Ashraf liked this
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Junaid Khan added this note
well we have some other case study and is same to the this company kindly find that from jaff madora IFM book and solve it.\ Moreover this is was good effort.
Saleh Cooker Mugira added this note
this is real good stuff
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