Questions
1. Either the translation gain (or loss) or the gain (or loss) resulting from a hedge...

1. Either the translation gain (or loss) or the gain (or loss) resulting from a hedge strategy is a real gain (or loss).

a. True

b. False

2. If a firm does not have foreign subsidiaries, it is not subject to ______.

a. transaction exposure

b. economic exposure

c. translation exposure

d. A and B

e. A and C

3. A U.S. company with sales to Canada amounting to C$6 million. Its cost of materials attributable to the purchase of Canadian goods is C$8 million. Its interest expense on Canadian loans is C$2 million. Given these exact figures above, the dollar value of its "earnings before interest and taxes" would ____ if the Canadian dollar appreciates; the dollar value of its cash flows would ____ if the Canadian dollar appreciates.

a. increase; increase

b. decrease; increase

c. decrease; decrease

d. increase; decrease

4. Appreciation of the euro relative to the U.S. dollar will cause this firm's reported earnings (from the consolidated income statement) to ____. If a firm desired to protect against this possibility, it could stabilize its reported earnings by ____ euros forward in the foreign exchange market.

a. be reduced; purchasing

b. be reduced; selling

c. increase; selling

d. increase; purchasing

5. Which of the following statements is incorrect?

a. Transaction exposure represents only the exchange rate risk when converting net foreign cash inflows to U.S. dollars or when purchasing foreign currencies to send payments.

b. Economic exposure represents any impact of exchange rate fluctuations on a firm's future cash flows.

c. Firms can simply focus on hedging their foreign currency payables and/or receivables to hedge economic exposure.

d. The management of economic exposure tends to serve as a long-term solution rather than just a short-term solution.

In: Finance

Rocky Mountains Limited (RML) is a Canadian public company that sells hiking and outdoors equipment. Its...

Rocky Mountains Limited (RML) is a Canadian public company that sells hiking and outdoors equipment. Its controller provided you with the following information related to its 2019 tax year ended December 31:

Income from operations, including $100,000 earned in U.S. operations (net/after reduction of $20,000 U.S. tax withheld) (both total and US portion are net)

$300,000

Canadian investment royalty income

15,000

U.K. non foreign affiliate dividend income (before deducting $5,000 of tax withheld)

25,000

Taxable dividend received from non-connected Canadian corporations

10,000

Capital gains

12,000

Charitable donations

$290,000

Unused foreign tax credit in respect of U.S.

$4,000

Net capital losses that were incurred in 1995 (not yet used)

$15,000

Non capital losses that were incurred in 2013 (not yet used)

$3,000

Non capital losses that were incurred in 1995 (not yet used)

$8,000

RML’s controller pays her own personal taxes at the marginal rate of 26%, as she personally earns between $95,259 and $147,667 annually.

RML has permanent establishments in the United States, British Columbia, and Alberta. Its gross revenues and salaries and wages data have been allocated as follows:

British Columbia

Alberta

United States

Gross Revenues

$4,000,000

$3,000,000

$3,000,000

Salaries and wages

$500,000

$300,000

$200,000

Gross revenues exclude income from property not used in connection with the principal business operation of the corporation.

Please calculate the total federal tax payable by the corporation for the 2019 taxation year, considering any tax credits potentially available, as well. Show all calculations. You do not need to reference the handbook.

In: Accounting

Concur Technologies, Inc., is a large expense-management company located in Redmond, Washington.  The Wall Street Journal asked...

Concur Technologies, Inc., is a large expense-management company located in Redmond, Washington.  The Wall Street Journal asked Concur to examine the data from 8.3 million expense reports to provide insights regarding business travel expenses. Their analysis of the data showed that New York was the most expensive city, with an average daily hotel room rate of $198 and an average amount spent on entertainment, including group meals and tickets for shows, sports, and other events, of $172. In comparison, the U.S. averages for these two categories were $89 for the room rate and $99 for entertainment. The table in the Excel Online file below shows the average daily hotel room rate and the amount spent on entertainment for a random sample of 9 of the 25 most visited U.S. cities (The Wall Street Journal, August 18, 2011). Construct a spreadsheet to answer the following questions.
City Hotel Room Rate ($) Entertainment ($)
Boston 144 163
Denver 100 104
Nashville 93 102
New Orleans 111 140
Phoenix 89 100
San Diego 105 121
San Francisco 134 165
San Jose 87 140
Tampa 82 97

  1. What does the scatter diagram developed in part (a) indicate about the relationship between the two variables?

    The scatter diagram indicates a  _________negativepositive linear relationship between the hotel room rate and the amount spent on entertainment.

  2. Develop the least squares estimated regression equation.

         (to 4 decimals)

  3. Provide an interpretation for the slope of the estimated regression equation (to 3 decimals).

    The slope of the estimated regression line is approximately  . So, for every dollar _________increasedecrease in the hotel room rate the amount spent on entertainment increases by $.

  4. The average room rate in Chicago is $128, considerably higher than the U.S. average. Predict the entertainment expense per day for Chicago (to whole number).


In: Economics

ACQUISITION PROGRAM Acquisition of Varta AG (Germany) In 2002, Rayovac acquired the consumer battery business of...

ACQUISITION PROGRAM

Acquisition of Varta AG (Germany)
In 2002, Rayovac acquired the consumer battery business of Varta AG of Germany. Varta was the leading European-based manufacturer of general batteries and 86% of its revenues were generated in Europe. Some overlap in Latin America permitted combined operations which solidified Rayovac’s market lead outside of Brazil. Too, the complementary geographic distribution of the firms’ production facilities and distribution channels was expected to yield greater access to global sourcing and generate cost savings of $30-40 million per year.

Acquisition of Microlite (Latin America)
In 2004 Rayovac acquired Microlite SA, the largest producer of consumer batteries in Brazil and owner of the Rayovac brand name in Brazil. It immediately realized a 50% market share in Latin America’s largest consumer market. Rayovac replaced Microlite’s management team with Rayovac veterans who reduced costs, increased efficiency, improved product packaging, and raised prices 16%. The Microlite business was also undercapitalized and losing money. It was considered by lenders to be a high risk and, consequently, paid very high interest rates. Rayovac immediately recapitalized the business, replacing high interest-rate loans with lower interest rate Rayovac-backed debentures. As a result of the acquisition, Rayovac expected to increase total Latin America revenues by approximately 50% in 2005.

Acquisition of 85% of Ningbo Baowang (China)

Located inNinghai, China, Ningbo Baowang was a major exporter of private label branded batteries. The company also sold its Baowang brand throughout China. Rayovac acquired the Chinese firm in 2004, hoping both to increase its presence in the rapidly growing Asian market and to add a low cost manufacturing subsidiary from which it could export Rayovac and Varta brand batteries to global markets. Rayovac replaced Ningbo’s management with its own to implement Rayovac process controls and management policies more efficiently. It also installed new manufacturing equipment that would allow it to produce over one billion Rayovac branded batteries a year beginning in 2005.  

Explain how this acquisition program helps Rayovac to capitalize upon its strengths and opportunities and neutralize its weaknesses and threats.

In: Finance

On January 1, 2020, ABC Ltd. sold five year, 6% bonds with a face value of...

On January 1, 2020, ABC Ltd. sold five year, 6% bonds with a face value of $ 400,000. Interest will be paid semi-annually on June 30 and December 31. The bonds were sold for $ 417,505 to yield 5%. Using the effective-interest method of amortization of bond discount or premium, prepare the journal entries for 2020.

In: Accounting

In 2020, Raoul & Ayesha , married filing joint taxpayers, have adjusted gross income of $430,000....

In 2020, Raoul & Ayesha , married filing joint taxpayers, have adjusted gross income of $430,000. Their AGI includes $10,000 of interest income. They have no dependents and have $50,000 of itemize deductions. What is their 2020 federal income tax? (PLEASE SHOW ALL WORK)

A) $83,631

B) $83,829

C) $89,212

D) $89,404

In: Accounting

Cities, States, and Businesses Lead the Way to Reduce Greenhouse Gases Although the United States signed...

Cities, States, and Businesses Lead the Way to Reduce Greenhouse Gases

Although the United States signed the original Kyoto Protocol, the U.S. Congress never ratified the agreement so the protocol has never been legally binding on the United States. The administration of President George W. Bush argued that there was no scientific consensus on global warming and that the costs of reducing greenhouse gases were simply too high. However, many state and local governments felt they had waited long enough for change at the federal level. In 2005, mayors from 141 cities and both major political parties gathered in San Francisco to organize their own efforts to reduce the causes and consequences of global warming. Their goal was to reduce greenhouse emissions in their own cities by the same 7 percent that the United States had agreed to in the Kyoto Protocol.

As of 2014, a total of 1,060 out of 1,139 mayors of U.S. cities had signed the U.S. Conference of Mayors Climate Protection Agreement. Among the reasons the mayors cited for supporting this agreement were concerns in their communities over increasing droughts, reduced supplies of fresh water due to melting glaciers, and rising sea levels in coastal cities. “The United States inevitably will have to join this effort,” Seattle mayor Greg Nickels said. “Ultimately we will make it impossible for the federal government to say no. They will see that it can be done without huge economic disruption and that there’s support throughout the country to do this.”

Similar actions are being taken at the state level. In 2005, then-governor of California Arnold Schwarzenegger stated at a press conference, “The debate is over . . . and we know the time for action is now.” In 2006, Governor Schwarzenegger signed the California Global Warming Solutions Act. The goal of the act was to bring California into compliance with the Kyoto Protocol by 2020, an effort that would require a 25 percent reduction in greenhouse gases for a state that, if a country, would be the tenth largest producer of greenhouse gases in the world. At the signing ceremony, the governor stated, “I say unquestionably it is good for businesses.” Indeed, a cost analysis by the California Air Resources Board in 2008 indicated that the law would add $27 billion to the economy of the state and add 100,000 jobs.

The California effort is gaining popularity around the country. In the northeastern United States, for example, nine states have joined together collectively to form the Regional Greenhouse Gas Initiative to control regional production of greenhouse gases. A similar group emerged in western North America when seven western states and four Canadian provinces joined together in 2007 to form the Western Climate Initiative. For both groups, the goal was to to regulate greenhouse emissions. By 2014, northeastern group continued to work together while the western group had a reduced membership that included only California and the four Canadian provinces.

A number of large businesses are also joining in efforts to reduce greenhouse gases. General Electric, for example, announced in 2014 that it had reduced its greenhouse emissions by 34 percent since 2004. In addition, the company has invested $12 billion for research and development of technologies that can reduce greenhouse gases and is planning to invest a total of $25 billion by 2020. In 2011, General Electric announced that its technology generated more than $100 billion in revenues, which confirmed that creating technology that would reduce greenhouse emissions was a profitable thing to do.

In 2013, the New York Times reported that a growing number of companies including Microsoft, ExxonMobil, and Google have developed long-term financial plans that include the cost of producing greenhouse gases. These companies recognize that the scientific evidence of human-caused global climate change continues to grow and that they will increasingly need to factor the costs of emissions into their budgets. Those companies that include plans to accommodate and reduce these costs are likely to profit from such planning.

From these stories, it is clear that progress on reducing greenhouse gases that cause global warming does not have to wait for national and international agreements to take effect. The public overwhelmingly understands that Earth is warming, states and cities are pushing forward with solutions that save money, and large corporations understand that reducing emissions can reduce costs and improve profits over the long term. In short, curbing greenhouse gases and global warming is not only good for humans and the environment, it can be good for business as well.

Critical Thinking Questions

1.What data might city mayors use to support their assertion that humans are causing global warming?

2.Why is it more effective for states and provinces to create regional partnerships to combat global warming rather than doing so alone?

In: Other

The word “Investment” carries with it many definitions. In this course, it represents ‘Business Spending’----businesses spending...

The word “Investment” carries with it many definitions. In this course, it represents ‘Business Spending’----businesses spending money hiring workers to BUILD! The three areas of Business Spending can be broken down into: 1. new plant and equipment construction volume (new factory construction) 2. New residential construction volume and sales volume and 3. “new”----net additions to (or subtraction from) inventories. Inventories are often broken down into three areas: raw materials inventories, ‘work in process’ and finished product inventories (visualize new cars sitting in the dealership on Capitol Expressway). New plant and equipment inventories make up about two thirds of the total. Visualize a company owning and operating four factories that mass produce shoes: the yearly maintenance of the four factories can be called ‘replacement’ Investment. The construction of a new, 5th factory can be called ‘net’ Investment. One of the most, if not THE most high profile example of a new factory is the Tesla battery factory outside Sparks, Nevada. Let’s say a shoe company is mass producing shoes out of each of its four factories, each capable of producing 1 million pairs. Let’s say that the price per pair the firm sees (wholesale) is $30, and the cost per pair is $27. The price per pair is set by market conditions—the Demand Curve for the shoes. The firm earns a profit of $3 per pair for every pair produced, distributed and sold (the retailer will mark up the price to the customer). The driving force behind the firm’s decision to build “Factory #5”---the “green light”---is the idea that the firm enjoys a sales volume that is high, and rising, and expected to rise further in the future. The new factory will most likely result in a dramatic drop in the cost per pair owing to gains from new technology, yet the new extra shoes MUST BE SOLD to customers. The concept that the firm’s sales volume must be high and rising and expected to rise in the future can be restated as the firm’s ‘excess capacity’ must be low and dropping and expected to drop further in the future---in short, the firm’s sales volume, in theory, should be expected to ‘bust through’ or exceed the firm’s current capacity. This firm’s decision to build ‘Factory #5’ is perhaps the most important decision the firm will make in the next year or two. In theory, it is an “all or nothing” decision---let’s say the firm will spend $100 million to build the factory, or spend zero on this project. A ‘healthy’ firm that wants to expand may have two projects but may only obtain funding for one, or four projects and may only be able to obtain funding for two—owing to the fact that the supply of loanable funds, and equity funding, is finite and this firm will be competing with other firms for essentially the “same” funding. Once we make the decision to proceed---the ‘green light’---then we must line up FINANCING---where and how will we obtain $100million for our project, which will start on Jan 2 of next year and run until Dec 31 of that year? Profits, also known as retained earnings, are often the most important factor. Let’s say that we have earned $30 million in retained earnings, and we wish to borrow the other $70 million (let’s make it 75 million owing to possible cost overruns). We will apply for a loan from some financial institution, where the decision making body (we can call it a ‘loan committee’) is considering 10 loan applications, and will accept 5 and deny 5. We may have to ‘beat out’ a rival firm, who has their own great idea and their own grand plans for their own factory #5, but have $20 million saved in retained earnings and wish and need to borrow $80 million. The concept of a ‘shortage’ of funds suggests that we must appear a ‘stronger’ candidate for the financing than our rival. Sad but true. Let’s say we are in a position to “beat out” our rival for the loan money. We base our entire business model that the shoes mass produced by our new factory will cost, say, $27 per pair (we can revise this later) on certain assumptions about the cost of the land, labor, raw materials, plant and equipment needed to build the factory along with the projected cost of compliance involving government regulations (a big cost when it comes to building a house) and INTEREST PAYMENTS ON BORROWED MONEY! Let’s say that we are planning to borrow $70 million at an interest rate of 10% for yearly interest-only payments of $7 million per year. Let’s say that the interest rates on a loan like this in March of 1979 hovered in the range of 10%. From March 1979 to March 1980 the Federal Reserve pursued a ‘contractionary’ monetary policy that resulted in interest rates rising to roughly 20% ( about 18% for a home loan). The same loan committee that approved 5 and denied 5 of every ten loan applications will now approve 4 and deny 6. We saw one of the largest drops in new plant and equipment construction since the Great Depression. We could in theory raise money by issuing new equity securities (the ‘IPO’ is a prominent example) but this is less likely in an environment where liquidity is drying up, and interest rates are high or rising or both. It is not surprising that a drop in stock market values precedes a recession by a few months (the 2008-2009 recession is an example). Let’s assume that we have our own internal ‘green light’ and we have somehow obtained the needed financing---two hurdles overcome. Now, the great decision is: WHERE DO WE BUILD? Here, in the U.S.? Or in some other country? If we build on U.S. soil then the bulk of the construction costs will be counted as part of our Investment spending and part of the equation Total Spending=C+I+G+(X-M)
- Let’s say that we have a hypothetical firm operating four factories, each with the capacity to produce 1 million pairs of shoes. We have established that in order to build ‘Factory #5” it must 1. give itself the “green light”---sales volume must be high and rising and expected to rise further in the future---a necessary but not sufficient condition and 2. Raise the funding! Let’s say $100 million BEFORE WE BREAK GROUND ---our factory would be quite small --- Tesla is reported to be spending up to $5 billion for its battery plant outside Sparks. Factors involving raising the $100 million include: Profits, the higher the better, of course, but many firms will be required to spend money they do not have, in order to build factory #5, thus they must access financing through financial and capital markets, either through debt financing (borrowing the money) or equity financing (issuing new shares of equity securities). The fact that the supply of money in the financial and capital markets is FINITE is CENTRAL to the entire field of Macroeconomics! OKAY! We have the green light, and we have the financing! WHERE DO WE BUILD OUR FACTORY? In the U.S.? Or in another country? If we build in the U.S., then the ‘lion’s share’ of the $100 million will be part of the ‘Total Spending = C+I+G+X-M equation. If we build in another country, then very little of the $100 million will be spent on U.S. products and services, at least in theory. REASONS TO BUILD IN ANOTHER COUNTRY: 1. LABOR COSTS! A factory worker in the U.S. may earn over $20 and hour in wages, and cost over $28 in hourly costs to her employer—on average---compared to perhaps a wage as low as $2 an hour in another country. The disparity in wages in the U.S. is simply incredible: let’s say a worker may earn $7.25 an hour (the federal minimum wage in the U.S.----it has not risen in several years) in a chicken processing plant in Arkansas (most likely this worker came here from another country, either legally or ‘extralegally’---our economy RUNS on these workers!!) while a skilled worker may earn over $100,000 a year (no wonder the students in the Automotive classes get here earlier than I do---7:20am). The difference in a hypothetical U.S. worker’s hourly wage and her hourly cost to her employer ----that $8 (in theory) would consist of the employer’s share of FICA---remember FICA???—along with unemployment insurance, disablility &worker’s compensation benefits, possible medical benefits, 401k matching and pension benefits (not in most gig economy jobs) and other costs the employer bears but the employee does not see in her take home pay. The huge disparity (in theory) between labor costs in the U.S. compared to labor costs in another country are greatly diminished by the VERY likely fact that Factory #5 uses MUCH less labor---employs fewer workers than Factory #4. It is possible that Factory #5 uses fewer than half the workers in factory #4. If we did a walk-through of Factory #1, we would not believe that is was owned and operated by the same company. Toyota shut down its NUMMI plant in Fremont, while opening a new plant in Texas. We can estimate that the labor costs were much lower in the Texas facility. 2. TAX POLICY here in the U.S. compared to another country: our government entities---federal, state and local----may offer tax incentives for our firm to build Factory #5 in the U.S. (or the state of Nevada, where it is reported that Tesla may be receiving a ‘tax credit’ of perhaps 10% from the state). These possible tax incentives may be called an “Investment Tax Credit”--- I would call them a “Factory #5 construction tax credit”. Let’s not forget: the underlying reason to build the factory must be in place ---we must sell this steady stream of new extra shoes or cars or MRI machines—but if our price per pair is $30 and our cost per pair (without the tax incentives) is $27 and our projected profit is $3 per pair (in theory) then a 10% tax credit could raise our profits greatly. The issue: SOME OTHER COUNTRY also has a government, and it is offering its own tax incentives for us to build on THEIR soil. It can become a ‘bidding war’. Why does every country want our factory? JOBS! More on that later…..3. GOVERNMENT REGULATIONS (G REGS) HERE vs. THERE: every government of every country has established a framework of laws and regulations (regs) to protect its people. Sometimes a firm – like us—may take actions that are immoral and illegal. G REGS are put in place to address these actions, and in a perfect world, prevent them from happening in the first place. What can a firm ‘do wrong’ --- and what GOVERNMENT REGULATORY AGENCIES in the U.S. (as well as the legal system) exist to address and prevent these ‘wrongs’? 1. ‘TOO MUCH’ POLLUTION: if a firm pollutes the environment beyond a certain level, the legal system as well as the EPA (both federal and state---our state has the CARB and many other agencies) may step in to fine or enjoin the firm in the U.S.---thus raising our cost of doing business. What if this other country competing for our factory has a more relaxed set of pollution control laws and regs? 2. UNSAFE WORKING CONDITIONS: We have a pretty robust legal system and worker’s comp and worker’s disability system in the U.S.---for some workers, not all—compared to many other countries. We have the OSHA---both on the federal and state level—which can raise the cost of doing business---building the factory, then operating the factory once it is up and running---compared to another country 3. UNSAFE PRODUCTS: in the U.S. we have dozens of regulatory agencies, including the FDA, NHTSA, FAA, CPSC, the Dept. of Agriculture and DOZENS of other agencies to address, and hopefully prevent, unsafe products from being produced, distributed and sold in the U.S. 4. DISCRIMINATION: The EEOC (the Dept. of Labor) ---both federal and state---and our legal system act to address and try to prevent discrimination by employers against women, older workers, and other groups. The discrimination lawsuit that female employees filed against Walmart in the U.S. NEVER WOULD HAVE OCCURRED in many other countries 5. ABUSES OF MARKET POWER: The U.S. has a series of ‘Antitrust’ laws, created about 110 years ago and built on since, that try to address and prevent ‘abuses of market power’ by firms doing business in the U.S.---the relevant agencies include the Antitrust Division of the Justice Dept. and the Attorneys General of all 50 states (many are going after Google right now) as well as the FTC. 6. INACCURATE REPORTING OF PROFITS AND LOSSES---Enron being the classic example---when a firm doing business in the U.S. violates these laws, it may be prosecuted by the Dept. of Justice, the SEC, the IRS, and many other agencies. There are many other misdeeds a firm –maybe our firm---could perform, and other U.S. and state and local regulatory agencies that may prosecute us and raise our costs of doing business. What if this other country’s government – competing for our business - simply has a more…’relaxed’….. set of regulations? Wow! Some other country may offer cheaper labor, a more attractive tax package, a more ‘friendly’ set of regulations… why would our firm build factory #5 on U.S. soil? I believe that recent events help explain this set of concepts…
- WHY BUILD FACTORY #5 on U.S. soil? I mean, labor is cheaper in another country, Government Regulations may be more relaxed and cheaper to comply with, and the tax incentives offered by another country may be more attractive… so why build here? Many reasons, starting with: 1. the idea that the U.S. economy, with over $20 Trillion in annual Total Spending on all goods and services, is still the largest market in the world. US. HOUSEHOLDS, GOVERNMENTS and BUSINESSES buy every conceivable product and service. If our firm builds Factory #5 in another country, then we must incur 2.TRANSPORTATION COSTS and burdens that we may not be able to forsee. We have a pretty good example of this concept playing out RIGHT NOW. EVEN IF we build Factory #5 fifty feet south, or north, of our border, we must move our product across the border into the U.S. Our government (and every government I have ever read about) maintains the right to STOP AND INSPECT any and all cargo—this can take two minutes, two hours, two days, two weeks, two months. The same concept applies to people, as evidenced by the tragedy at our southern border. I have a friend who had a Y2K job up in Canada. She got off the plane in Toronto and she was ushered into a windowless room and ‘questioned’ for hours--- AND I THOUGHT CANADA WAS AN ALLY!!! If we must transport our products across the U.S. border by plane, truck, auto, ship, rail we are vulnerable to any FUTURE RISE in transportation costs—anticipated or not. Energy costs. Shipping costs. Fees at the Port of Oakland or Long Beach. Let’s say we plan to sell our product to buyers in the U.S. for the entire 20 year life of our factory. Do we ‘feel lucky’ for the next 20 years? Yes, yes, supply chains are very VERY interdependent----and, as we now know, fragile, at least in theory. What if a second terrorist attack similar in scale to 9\11 were to occur? Our government could, in theory, ENFORCE EXISTING LAWS AND PROTOCALS to “slow down” the stop and inspection process. The U.S. has thermal imaging technology whereby a container or truck is brought in to a bay and “Xray”d if you will…. If this technology were to be employed more vigorously, our product would not make it to the shelves, or to the Amazon “fulfillment center” in a timely basis, cutting in to those profit margins that we had anticipated. Do you feel lucky? MANY firms have built Factory #5 overseas… and then built their next factory, Factory #6, on U.S. soil---and they weren’t being altruistic or patriotic in their decision. Profit maximization is the driving force behind every decision a firm makes, including where to build Factory #5. 3. TRADE BARRIERS: TARIFFS AND QUOTAS! Again, the present time is instructive. As many of you know, the President of the U.S. can unilaterally, without approval by Congress, impose new, extra tariffs on products coming in to the U.S. The only brake on a reckless President is impeachment---and CONVICTION, as we know too well. Do you feel lucky? For the next 20 years? (a tariff is a tax on products coming in to the U.S.) Raising tariffs is widely seen as bad policy: the price of the imports rises for the U.S. consumer, cutting into her purchasing power, and our trading partner RETAILIATES by raising THEIR tariffs on OUR EXPORTS, thus costing U.S. jobs. Higher inflation AND higher unemployment, hurting two of the five major goals of Macro policy 4. “NON-QUANTIFIABLE” forces: let’s say we build factory #5 7,000 miles away from our headquarters for all the reasons we discussed earlier. It is up and running on Jan2. In Feb, the rains come---roads are washed out. Raw materials cannot arrive. No profits. In fact, we still have to make the mortgage payments on the Factory---our newest, best hope of survival. In March there is a LONG dockworker’s strike. A strike by dockworkers can happen here, but very rarely, and they not last very long. Again, an interruption of that steady flow of new, extra products. In May, the electricity is out. In June, the natural gas distribution is shut down. Again, it can happen here, but when it does it is a BIG DEAL, and, in the U.S., over 98% of the time, the lights are on and you can heat your home or office. And run your factory. The political pressure on PG&E has been sufficient to ensure somewhat reliable power---compared to some rival nations. In July, there is political upheaval leading to a GENERAL strike---almost NO ONE is working. No profits for us. Extreme case: there is a revolution---it happens—and our factory is destroyed, or worse, taken over by ‘the people’ and it becomes a “people’s” factory---but we still owe Bank of America the monthly mortgage payments---yes, insurance is possible---but we have lost our capacity in the meantime-----we have orders that WE CANNOT FILL---a rival firm will fill them. We lose market share. We complain to our government, and they tell us ‘WHY DID YOU BUILD FACTORY #5 in THAT country?” The biggest mistake we can ever make. Factory #5 was our future. The U.S. may very well be the most profitable place to build factory #5.
following the lectures to answer all of the questions.

1. Please list and discuss at least four government regulations that may be stricter for a firm, and more costly to comply with, in the U.S. as compared to other countries.

2. What "hurdles" must a firm overcome in order to build a factory in the next 12 to 24 months?

3. What forces may influence a firm to build its next factory in another country? Which one force may be the most important, in your opinion? Why?

4. What forces may influence a firm to build its next factory on U.S. soil? Which one force may be the most important, in your opinion? Why?

In: Economics

ZIPE Co. which is the market leader in the sector in which it operates, wants to...

ZIPE Co. which is the market leader in the sector in which it operates, wants to continue its
success in the international arena. First of all, firm plans to open a store in the city center of
Berlin, Germany. The CEO of the company traveled with the senior managers and asked the
finance manager to submit a feasibility report. The finance manager has reached the
following figures in coordination with other departments.
The rentals of the shops in the area where investment is planned are quite expensive.
Nevertheless, it is not a situation that cannot be tolerated both in terms of the target
customer volume and the prestige of the company. The rental cost a shop in this area of the
firm will be € 240,000 per year. Also, in Germany, wages are expected to be higher than in
Turkey. The number of personnel required is determined and the total cost is expected to be
€ 300,000. In addition to these costs, the company is expected to incur operating costs of €
120,000 annually. By the way, it is necessary to advertise with a huge commercial campaign.
The € 200,000 ad budget for the first year will be reduced to € 50,000 in the following years.
In spite of these costs, the company is expected to reach a sales figure of € 6,500,000 for the
first year. In a project with a 10-year economic life expectancy, sales will rise to € 7,000,000
for the second year, € 7,500,000 for the third year, and € 8,000,000 for the third year and
will remain stable at this level. Firms earn up(increase) to 20% of gross profits and 80% of cost of goods sold.
In order for the firm to open such a shop in Germany, it has to invest a fixed asset of €
5,000,000. It is expected that the scrap value of the investment made at the end of 10 years
will be zero. The tax rate for the firm is 20%, the cost of capital is 8% and the depreciation is
straight line method.


So, what would be your decision as a finance manager?

In: Finance

ZIPE Co. which is the market leader in the sector in which it operates, wants to...


ZIPE Co. which is the market leader in the sector in which it operates, wants to continue its
success in the international arena. First of all, firm plans to open a store in the city center of
Berlin, Germany. The CEO of the company traveled with the senior managers and asked the
finance manager to submit a feasibility report. The finance manager has reached the
following figures in coordination with other departments.
The rentals of the shops in the area where investment is planned are quite expensive.
Nevertheless, it is not a situation that cannot be tolerated both in terms of the target
customer volume and the prestige of the company. The rental cost a shop in this area of the
firm will be € 240,000 per year. Also, in Germany, wages are expected to be higher than in
Turkey. The number of personnel required is determined and the total cost is expected to be
€ 300,000. In addition to these costs, the company is expected to incur operating costs of €
120,000 annually. By the way, it is necessary to advertise with a huge commercial campaign.
The € 200,000 ad budget for the first year will be reduced to € 50,000 in the following years.
In spite of these costs, the company is expected to reach a sales figure of € 6,500,000 for the
first year. In a project with a 10-year economic life expectancy, sales will rise to € 7,000,000
for the second year, € 7,500,000 for the third year, and € 8,000,000 for the third year and
will remain stable at this level. Firms earn up(increase) to 20% of gross profits and 80% of sales.
In order for the firm to open such a shop in Germany, it has to invest a fixed asset of €
5,000,000. It is expected that the scrap value of the investment made at the end of 10 years
will be zero. The tax rate for the firm is 20%, the cost of capital is 8% and the depreciation is
straight line method.


So, what would be your decision as a finance manager?

In: Finance