2nd Internal, Marketing Case Exam

VIA University College,

Business Economics AP Degree, 3rd semester

Number of characters: 6934

11.10.2022
Question 1
A thorough investigation into the macroeconomics of Argentina and United Arab Emirates will
include key indicators, such as GDP per capita, inflation and unemployment rate.
GDP per capita provides an economic outlook of a country, used to estimate the size the
country and how it is performing. The higher the GDP, means that all the resources available to
people including goods and services and wages are increasing and getting better.
The following information has been conducted by doing secondary research.

Year Argentina UAE

2019 $10,076 $42,701
2020 $8,585 $36,284
2021 $10,729 $42,883
Figure 1. GDP per capita (in $)

Source: (Statista, 2022)

As we can assume from the aforementioned data, I can see a sharp decrease in the GDP per
capita of approximately 0.85% in Argentina and 0.84% in UAE because of the COVID-19
outbreak. To slow down the spread of the disease, many economic activities had to be
fully/partially restricted. Therefore, production and employment were cut substantially, leading
to a sharp decrease in income and rise in unemployment rate, thus fueling the decline pf GDP
per capita from 2019. (Wang, 2022)
Even though the decline in GDP per capita was in the same rate in both countries, we can see a
clear difference in the amount of money citizens receive. Therefore, based solely on the GDP
indicator, I can state that the UAE looks like a better option for Joe & the Juice to expand to.
Secondly, inflation rate, which is the percentage increase in prices on a monthly/yearly basis.
The increase in the inflation rate is usually caused by a supply chain shock and the US
government printing trillions of dollars in a years’ span, thus leading to a chain-reaction
worldwide since most of the countries are dependent on the US economy.

Year Argentina UAE

2019 53.55% -1.93%
2020 42.02% -2.07%
2021 48.41% 0.19%
Figure 2. Inflation rate
Source: (Statista, 2022)
A good, healthy inflation rate of a country should be around 2%. But in our case, Argentina’s
rate is through the roof, thus resulting in a hyperinflation for decades, with an 11 percent
decline in 2020, while in the UAE has been a deflation of up to -2%.
Therefore, if inflation is up, so should be the wages of the said country, with the disposable
income decreasing. With these changes, we can usually see a decline in the customer trust
index, fueling the decrease in consumption, thus leading to a lower GDP, increase in
unemployment. From the citizens point of view, we can see changes in the buying behavior,
especially in lower-to-middle class families, having less and less disposable income. On the
other hand, in the UAE’s case where the inflation rate in down, we can see changes such as the
demand going down, therefore the GDP decreasing and the unemployment rate increasing.
A good method to fight the inflation rate is to have a good monetary policy controlled by a
Central Bank. In this case, when exceptional situations like the COVID-19 pandemic, they take
control of the economy and rase the interest rates. But this case is a double-edged sword.
Raising the interest rates brings the investments into the economy down and mortgage rates
up, thus decreasing the demand and GDP, therefore increasing the unemployment, decreasing
the wages, and leading the economy in a recession.
Thirdly, the unemployment rate brings insights into the economy’s spare capacity and unused
resources. It usually tends to be cyclical, and as people are not in the workforce, they lose their
income and become more aware of their spending habits and tend to be spend less money.
(Focus Economics, 2022)

Year Argentina UAE

2019 9.84% 2.23%
2020 11.46% 3.19%
2021 10.9% 3.36%
Figure 3. Unemployment rate
Source: (Statista, 2021)
As per the data from the table, I can clearly stress the huge difference between the
unemployment rate in both countries, with Argentina having almost 1 million people
unemployed. Because of the massive fiscal and monetary tightening in 2018 and 2019, it
pushed the country in a recession, thus increasing the unemployment rate yearly. (Levy
Economics Institute, 2020)
Based on all three economic key indicators, there is clear evidence that the UAE is the country
that Joe & The Juice should propagate their products in, taking advantage of its’ continuously
expanding ecosystem, current low inflation rate and higher GDP per capita, thus the consumers
are more confident and likely to spend their money on the company’s premium product
portfolio.
Question 2
2.1 Capital value
Year Investment Profit Total
-26400900   - 26,400,900 - 26,400,900
1   10,960,000 10,960,000
2   15,810,000 15,810,000
3   20,570,000 20,570,000
4   22,696,000 22,696,000
5   18,250,000 18,250,000
Figure 4. Profit

Investment - 26,400,900 Dkk

NPV 44,694,682 DKK
Capital
Value 18,293,782 DKK
   
IRR 52%
Figure 5. Capital value and IRR
With a capital value of 18,293,782 DKK and an internal interest rate of 52%, it is very profitable
for the company to establish a new store, considering they have set an interest rate of 25%,
which makes it double than that.

2.2 Less revenue

Year Investment Profit Total
-2600000   - 2,600,000 - 2,600,000
1   1,060,000 1,060,000
2   1,190,000 1,190,000
3   1,860,000 1,860,000
4   1,528,000 1,528,000
5   1,312,000 1,312,000
Figure 6. Profit with 50% less revenue

Investment - 26,400,900 Dkk

NPV 18,826,061 DKK
Capital
Value - 7,574,839 DKK
   
IRR 12%
Figure 7. Capital value and IRR with 50% less revenue
2.3 Internal interest rate
With the daily revenues for all years adjusted by 50%, the company will see a decrease in the
capital value to an amount of 7,574,839DKK. With an IRR of 52%, it would be very profitable for
the company to launch new shops, while with 50% less revenue, with an IRR of 12%, it is way
less than the 25% desired interest rate, which makes it unattractive to open new shops.

Question 3
To determine the calculation rate, the company should compare different investment
opportunities and draw up a budget to work out whether the investment is profitable. A good
method is using the internal rate of return, with its’ purpose being to calculate the expected
return on capital invested. On the other hand, another proven method has been the capital
value method, which is discounting all the transactions associated with the investment back to
the point of which the investment was made. Therefore, an investment is profitable if the
capital value is positive. (Hansen, 2018)
Contents
Question 1...................................................................................................................................................2
Question 2...................................................................................................................................................4
2.1 Capital value......................................................................................................................................4
2.2 Less revenue......................................................................................................................................4
2.3 Internal interest rate.........................................................................................................................5
Question 3...................................................................................................................................................5
Bibliography................................................................................................................................................7
Bibliography
Focus Economics, 2022. What is Unemployment rate. [Online]
Available at: https://www.focus-economics.com/economic-indicator/unemployment-rate#:~:text=The
%20unemployment%20rate%20provides%20insights,increases%20as%20economic%20activity
%20slows.
[Accessed 11 10 2022].

Hansen, L., 2018. Financial Management. 2nd ed. s.l.:Poul Kragh Jensen.

Levy Economics Institute, 2020. Fiscal Policy in Argentina, Brazil, and Mexico and the 2030 Agenda for
Sustainable Development. [Online]
Available at: https://www.levyinstitute.org/publications/fiscal-policy-in-argentina-brazil-and-mexico-
and-the-2030-agenda-for-sustainable-development
[Accessed 11 10 2022].

Statista, 2021. Unemployment rate. [Online]

Available at: https://www.statista.com/statistics/297778/uae-unemployment-rate/
[Accessed 11 10 2022].

Statista, 2022. Argentina, UAE inflation rate. [Online]

Available at: https://www.statista.com/statistics/297779/uae-inflation-rate/
[Accessed 11 10 2022].

Statista, 2022. GDP per capita per country. [Online]

Available at: https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?
end=2021&locations=AE&start=2019
[Accessed 11 10 2022].

Wang, W., 2022. The COVID-19 pandemic and gross domestic product per capita growth. [Online]
Available at: https://www150.statcan.gc.ca/n1/pub/36-28-0001/2022005/article/00002-eng.htm
[Accessed 11 10 2022].