Question

In: Economics

You are the CEO of a major US equipment manufacturer that sells its industrial construction equipment...

You are the CEO of a major US equipment manufacturer that sells its industrial construction equipment worldwide. You have seen shrinking profits in the past 5 years due to competition from Chinese equipment manufacturers and your Board of Directors and shareholders are looking to you for profit improvement. You have been approached by the Mexican government to open a factory in Juarez (just across the border from El Paso, Texas) and the Mexican government will subsidize the facility construction if you can create 200 new jobs. Opening this facility in Mexico will mean a reduction of union workers in the US plant, but will save the company $20 million a year in labor costs. On the other hand, the US government is considering a Border Adjustment Tax on parts you produce in Mexico and bring back to the US plant for final assembly. The total costs of this Tax is unknown but it could be up to 40% of the value of items produced in the new Mexican facility.

On top of this, you are looking to expand your global sales presence into third world regions such as Central Africa, South East Asia, Central America and other regions that need construction equipment to expand their infrastructure and improve their local economies. Your Global Sales and Marketing teams have advised that Chinese manufacturers are also targeting these same regions. This same team also advises that the market potential in these regions could expand sales by 50% and profits by 15% over the next 3 years.

Keeping in mind that it is the fiduciary responsibility of all leaders of for-profit corporations to maximize shareholder value, start a thread that begins with your decision to open, or not to open, a facility in Mexico and explain, in detail, your reasoning.

Solutions

Expert Solution

In my opinion we should open a factory in Juarez due to following reason:-

1. Our organisation will get profit from mexican goverment in the form of subsidary.

2. Opening this facility in mexico will save company $ 20 million a year in labour cost.

3. We have to increase our production to expand our global sales into third world region,this pupose will be well served

by opening new factory in Juarez.

4.The cost of border tax adjustment could be eliminated at greator extent by 15 percent profit and expansion of sales by 50 percent in third world regions, which will prove benificial while competing with chinise product.


Related Solutions

You are the biological advisor to the CEO of a major US fishing fleet. Prepare a...
You are the biological advisor to the CEO of a major US fishing fleet. Prepare a document to be sent to the CEO describing guidelines that are imperative to maintain sustainable fisheries. Make sure to address specific fish species that are currently at risk today.
You are the biological advisor to the CEO of a major US fishing fleet. Prepare a...
You are the biological advisor to the CEO of a major US fishing fleet. Prepare a document to be sent to the CEO describing guidelines that are imperative to maintain sustainable fisheries. Make sure to address specific fish species that are currently at risk today.
Silkworm Inc is a manufacturer of construction equipment, machinery and engines. It also sells financial services....
Silkworm Inc is a manufacturer of construction equipment, machinery and engines. It also sells financial services. You anticipate a substantial increase in its machinery sales. You have the following data. US $'000 2018 2019 Net sales 39,867 57,392 COGS 30,367 43,578 SG&A 4,248 5,203 and thus in percentage terms: % of sales 2018 2019 Net sales 100 100 COGS 76.2 75.9 SG&A 10.7 9.1 a) Estimate the fixed and variable components of COGS and SG&A in 2019. What would be...
You are CEO of SUNSUP Corporation, a major innovator and manufacturer of solar panels. As part...
You are CEO of SUNSUP Corporation, a major innovator and manufacturer of solar panels. As part of SUNSUPS’s commitment to social responsibility, you initiated and led, between 2013 and 2018, the financing of startup solar panel companies in 3rd world countries (with loans forgiven if the startup did not succeed). By the end of 2018, about 2/3s of the startups have failed, but the other 1/3 appear to be commercially viable. Your Chief Financial Officer has advised you that, whatever...
You are the CEO of a major US apparel company that contracts work to garment manufacturers...
You are the CEO of a major US apparel company that contracts work to garment manufacturers abroad. Employees of one contractor report 20-hour workdays, pay below the minimum wage, overcrowded living conditions, physically abusive supervisors, and confiscation of their passports so they cannot quit. Local officials say labor laws are adhered to and enforced, though abuses appear widespread. You send inspectors to the offending factory abroad, but they uncover no labor violations. A labor-advocacy group claims that supervisors coached workers...
Pacific Equipment, which sells industrial handling equipment, values its inventory using LIFO. During the current year,...
Pacific Equipment, which sells industrial handling equipment, values its inventory using LIFO. During the current year, Pacific Equipment has experienced a significant increase in the cost of its inventory items. Although the net income for the current year has been fairly good, Lynne Jamison, the company president, wishes it was higher because the company has been considering borrowing money to purchase a new building. Mrs. Jamison has heard that a company’s choice of inventory valuation method can affect the company’s...
A medical device manufacturer sells its sterilization equipment to consumers with an inverse demand curve of...
A medical device manufacturer sells its sterilization equipment to consumers with an inverse demand curve of P = 6,000 – 400Q, where Q measures the number of sterilizers in thousands and P is the price per unit. The marginal cost of production is constant at $4,000. A) Solve for the profit-maximizing price and quantity. B) The Patient Protection and Affordable Care Act signed into law by President Barack Obama levies a tax on medical devices. Suppose the tax raises the...
A medical device manufacturer sells its sterilization equipment to consumers with an inverse demand curve of...
A medical device manufacturer sells its sterilization equipment to consumers with an inverse demand curve of P = 6,000 – 400Q, where Q measures the number of sterilizers in thousands and P is the price per unit. The marginal cost of production is constant at $4,000. A) Solve for the profit-maximizing price and quantity. B) The Patient Protection and Affordable Care Act signed into law by President Barack Obama levies a tax on medical devices. Suppose the tax raises the...
Equipment Purchasing The R&R construction company’s purchasing organization with the approval of the CEO is to...
Equipment Purchasing The R&R construction company’s purchasing organization with the approval of the CEO is to procure an excavator for their projects rather than outsourcing them. This is a fully loaded CAT 450 loader backhoe, priced at $300,000. The estimated life of this machine is 10 years and during that period the estimated after-tax cash flows (EATCF) are given below. The investments required rate of return is 15%. Year 0 1 2 3 4 5 6 7 8 9 10...
Tiger Equipment Inc., a manufacturer of construction equipment, prepared the following factory overhead cost budget for...
Tiger Equipment Inc., a manufacturer of construction equipment, prepared the following factory overhead cost budget for the Welding Department for May of the current year. The company expected to operate the department at 100% of normal capacity of 8,400 hours. TIGER EQUIPMENT INC. Factory Overhead Cost Budget-Welding Department For the Month Ended May 31 1 Variable costs: 2 Indirect factory wages $30,240.00 3 Power and light 20,160.00 4 Indirect materials 16,800.00 5 Total variable cost $67,200.00 6 Fixed costs: 7...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT