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Solution to Continuing Case Problem: Blades, Inc.

Plan 1Ben Holt's Plan

Calculation of baht-denominated revenue: Price per pair of "Speedos" Pairs of "Speedos" = Baht-denominated revenue Calculation of baht-denominated cost of goods sold: Cost of goods sold per pair of "Speedos" Pairs of "Speedos" = Baht-denominated expenses Calculation of dollar receipts due to conversion of baht into dollars: Net baht-denominated cash flows now (826,920,000 206,712,000) Interest earned on baht over a one-year period (15%) Baht to be converted in one year 4,594 180,000 826,920,000

620,208,000 93,031,200 713,239,200

Expected spot rate of baht in one year = Expected dollar receipts in one year

\$ 0.022 \$ 15,691,262

Plan 2Immediate Conversion

Calculation of baht-denominated revenue: Price per pair of "Speedos" Pairs of "Speedos" = Baht-denominated revenue 4,594 180,000 826,920,000

Calculation of baht-denominated cost of goods sold: Cost of goods sold per pair of "Speedos" Pairs of "Speedos" = Baht-denominated expenses

2,871 72,000 206,712,000

Calculation of dollar receipts due to conversion of baht into dollars: Net baht-denominated cash flows to be converted (826,920,000 206,712,000) Spot rate of baht now = Dollar receipts now Interest earned on dollars over a one-year period (8%) = Dollar receipts in one year

Calculation of dollar difference between the two plans:

Plan 1 Plan 2 Dollar difference \$ 15,691,262 16,075,791 \$ (384,529)

Thus, the cash flow generated in one year by Plan 1 exceed those generated by Plan 2 by approximately \$384,529. Therefore, Ben Holt's plan should not be implemented.