tugas kasus ifm blade

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Page 1: tugas kasus ifm blade

Case 14

1. In the given scenario, sales from the existing agreement should not be included in the

capital budgeting analysis. The reason being is that Blades would have these sales with

or without the subsidiary in Thailand. The cost savings for the pairs not sourced from

Thailand should be included because these sales would not happen if Blades continued

to import from Thailand. Finally, the sales resulting from a renewed agreement should be

included in the capital budgeting analysis because this revenue is incremental to creating

2. See spreadsheet. Blades should establish the subsidiary in Thailand under the given

conditions. The capital budgeting analysis shows a positive NPV if Blades renews the

agreement with Entertainment Products and establishes the subsidiary

3. See spreadsheet. The capital budgeting analysis indicates that Blades should establish a

subsidiary and not renew its agreement. The NPV was $8,746,688

4. See spreadsheet. The salvage value is not that critical. The capital budgeting analysis in

question 2 is the most feasible alternative. As spreadsheet suggests (comparing question

3 and question 4), even if Blades’ salvage value is reduced to 0 (Blades does not sell the

subsidiary), the NPV remains positive.

5. See spreadsheet. The capital budgeting analysis shows a positive NPV of $5,620,315 for

Page 2: tugas kasus ifm blade

the worst case scenario. Therefore, Blades should establish the subsidiary even if baht

depreciates by 5 percent annually.

Capital

Budgeting

Analysis 

PROBLE

M # 2Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Demand -

Entertain

ment

Products

180 180 180 180 180 180

Price per

unit - baht4.594 4.594 4.594 4.594 4.594 4.594

Revenue

from

agreement

0826,920,0

00

826,920,0

00

826,920,0

00

826,920,0

00

826,920,0

00

826,920,0

00

Other

retailers120 120 220 220 220 220 220

Price per

unit -  baht5 5.6 6.272 7.025 7.868 8.812 9.869

Revenue

from other

retailers

600,000,0

00

672,000,0

00

1,379,840,

000

1,545,420,

800

1,730,871,

296

1,938,575,

852

2,171,204,

954

Total

revenue

600,000,0

00

1,498,920,

000

2,206,760,

000

2,372,340,

800

2,557,791,

296

2,765,495,

852

2,998,124,

954

Variable

cost per

unit

3.5 3.92 4.39 4.917 5.507 6.168 6.908

Total

variable

cost

420,000,0

00

1,176,000,

000

1,756,160,

000

1,966,899,

200

2,202,927,

104

2,467,278,

356

2,763,351,

759

Less: cost

savings

32,400,00

0

Other

fixed

expenses

25,000,00

0

28,000,00

0

31,360,00

0

35,123,20

0

39,337,98

4

44,058,54

2

49,345,56

7

Page 3: tugas kasus ifm blade

Depreciati

on

30,000,00

0

30,000,00

0

30,000,00

0

30,000,00

0

30,000,00

0

30,000,00

0

30,000,00

0

Total

expenses

442,600,0

00

1,234,000,

000

1,817,520,

000

2,032,022,

400

2,272,265,

088

2,541,336,

899

2,842,697,

326

EBT of

susidiary

157,400,0

00

264,920,0

00

389,240,0

00

340,318,4

00

285,526,2

08

224,158,9

53

155,427,6

27

Host

governme

nt tax

(25%)

39,350,00

0

66,230,00

0

97,310,00

0

85,079,60

0

71,381,55

2

56,039,73

8

38,856,90

7

After tax

earnings

of

subsidiary

118,050,0

00

198,690,0

00

291,930,0

00

255,238,8

00

214,144,6

56

168,119,2

15

116,570,7

20

NCF to

subsidiary

148,050,0

00

228,690,0

00

321,930,0

00

285,238,8

00

244,144,6

56

198,119,2

15

146,570,7

20

Baht

remitted

by

susidiary

148,050,0

00

228,690,0

00

321,930,0

00

285,238,8

00

244,144,6

56

198,119,2

15

146,570,7

20

Witholdin

g tax on

remitted

funds

(10%)

14,805,00

0

22,869,00

0

32,193,00

0

28,523,88

0

24,414,46

6

19,811,92

1

14,657,07

2

Baht

remitted

after

witholding

taxes

133,245,0

00

205,821,0

00

289,737,0

00

256,714,9

20

219,730,1

90

178,307,2

93

131,913,6

48

Salvage

value

Exchange

rate - baht0.02300 0.02254 0.02209 0.02165 0.02121 0.02079 0.02037 0.01997

CF to

parent3,003,342 4,546,421 6,272,057 5,446,070 4,568,230 3,632,900 2,633,905

PV of

parent CF

(25%

discount

rate)

2,402,674 2,909,710 3,211,293 2,230,710 1,496,918 952.343 552.37

Initial

investment

by parent

12,650,00

0

Page 4: tugas kasus ifm blade

Cumulativ

e PV

-

10,247,32

6

-7,337,617 -4,126,323 -1,895,613 -398.695 553.648 1,106,018

PROBLE

M # 3Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Demand -

Entertain

ment

Products

5 5 5 5 5 5

Price per

unit - baht5.6 6.272 7.025 7.868 8.812 9.869

Revenue

from

agreement

028,000,00

0

31,360,00

0

35,123,20

0

39,337,98

4

44,058,54

2

49,345,56

7

Other

retailers120 120 220 220 220 220 220

Price per

unit -  baht5 5.6 6.272 7.025 7.868 8.812 9.869

Revenue

from other

retailers

600,000,0

00

672,000,0

00

1,379,840,

000

1,545,420,

800

1,730,871,

296

1,938,575,

852

2,171,204,

954

Total

revenue

600,000,0

00

700,000,0

00

1,411,200,

000

1,580,544,

000

1,770,209,

280

1,982,634,

394

2,220,550,

521

Variable

cost per

unit

3.5 3.92 4.39 4.917 5.507 6.168 6.908

Total

variable

cost

420,000,0

00

490,000,0

00

987,840,0

00

1,106,380,

800

1,239,146,

496

1,387,844,

076

1,554,385,

365

Less: cost

savings

32,400,00

0

Other

fixed

expenses

25,000,00

0

28,000,00

0

31,360,00

0

35,123,20

0

39,337,98

4

44,058,54

2

49,345,56

7

Depreciati

on

30,000,00

0

30,000,00

0

30,000,00

0

30,000,00

0

30,000,00

0

30,000,00

0

30,000,00

0

Total

expenses

442,600,0

00

548,000,0

00

1,049,200,

000

1,171,504,

000

1,308,484,

480

1,461,902,

618

1,633,730,

932

EBT of

susidiary

157,400,0

00

152,000,0

00

362,000,0

00

409,040,0

00

461,724,8

00

520,731,7

76

586,819,5

89

Page 5: tugas kasus ifm blade

Host

governme

nt tax

(25%)

39,350,00

0

38,000,00

0

90,500,00

0

102,260,0

00

115,431,2

00

130,182,9

44

146,704,8

97

After tax

earnings

of

subsidiary

118,050,0

00

114,000,0

00

271,500,0

00

306,780,0

00

346,293,6

00

390,548,8

32

440,114,6

92

NCF to

subsidiary

148,050,0

00

144,000,0

00

301,500,0

00

336,780,0

00

376,293,6

00

420,548,8

32

470,114,6

92

Baht

remitted

by

susidiary

148,050,0

00

144,000,0

00

301,500,0

00

336,780,0

00

376,293,6

00

420,548,8

32

470,114,6

92

Witholdin

g tax on

remitted

funds

(10%)

14,805,00

0

14,400,00

0

30,150,00

0

33,678,00

0

37,629,36

0

42,054,88

3

47,011,46

9

Baht

remitted

after

witholding

taxes

133,245,0

00

129,600,0

00

271,350,0

00

303,102,0

00

338,664,2

40

378,493,9

49

423,103,2

23

Salvage

value

Exchange

rate - baht0.02300 0.02254 0.02209 0.02165 0.02121 0.02079 0.02037 0.01997

CF to

parent3,003,342 2,862,760 5,874,026 6,430,148 7,040,890 7,711,578 8,448,054

PV of

parent CF

(25%

discount

rate)

2,402,674 1,832,167 3,007,501 2,633,788 2,307,159 2,021,544 1,771,685

Initial

investment

by parent

12,650,00

0

Cumulativ

e PV

-

10,247,32

6

-8,415,160 -5,407,658 -2,773,870 -466.711 1,554,833 3,326,518

PROBLE

M # 4Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Page 6: tugas kasus ifm blade

Demand -

Entertain

ment

Products

5 5 5 5 5 5

Price per

unit - baht5.6 6.272 7.025 7.868 8.812 9.869

Revenue

from

agreement

028,000,00

0

31,360,00

0

35,123,20

0

39,337,98

4

44,058,54

2

49,345,56

7

Other

retailers120 120 220 220 220 220 220

Price per

unit -  baht5 5.6 6.272 7.025 7.868 8.812 9.869

Revenue

from other

retailers

600,000,0

00

672,000,0

00

1,379,840,

000

1,545,420,

800

1,730,871,

296

1,938,575,

852

2,171,204,

954

Total

revenue

600,000,0

00

700,000,0

00

1,411,200,

000

1,580,544,

000

1,770,209,

280

1,982,634,

394

2,220,550,

521

Variable

cost per

unit

3.5 3.92 4.39 4.917 5.507 6.168 6.908

Total

variable

cost

420,000,0

00

490,000,0

00

987,840,0

00

1,106,380,

800

1,239,146,

496

1,387,844,

076

1,554,385,

365

Less: cost

savings

32,400,00

0

Other

fixed

expenses

25,000,00

0

28,000,00

0

31,360,00

0

35,123,20

0

39,337,98

4

44,058,54

2

49,345,56

7

Depreciati

on

30,000,00

0

30,000,00

0

30,000,00

0

30,000,00

0

30,000,00

0

30,000,00

0

30,000,00

0

Total

expenses

442,600,0

00

548,000,0

00

1,049,200,

000

1,171,504,

000

1,308,484,

480

1,461,902,

618

1,633,730,

932

EBT of

susidiary

157,400,0

00

152,000,0

00

362,000,0

00

409,040,0

00

461,724,8

00

520,731,7

76

586,819,5

89

Host

governme

nt tax

(25%)

39,350,00

0

38,000,00

0

90,500,00

0

102,260,0

00

115,431,2

00

130,182,9

44

146,704,8

97

After tax

earnings

of

subsidiary

118,050,0

00

114,000,0

00

271,500,0

00

306,780,0

00

346,293,6

00

390,548,8

32

440,114,6

92

Page 7: tugas kasus ifm blade

NCF to

subsidiary

148,050,0

00

144,000,0

00

301,500,0

00

336,780,0

00

376,293,6

00

420,548,8

32

470,114,6

92

Baht

remitted

by

susidiary

148,050,0

00

144,000,0

00

301,500,0

00

336,780,0

00

376,293,6

00

420,548,8

32

470,114,6

92

Witholdin

g tax on

remitted

funds

(10%)

14,805,00

0

14,400,00

0

30,150,00

0

33,678,00

0

37,629,36

0

42,054,88

3

47,011,46

9

Baht

remitted

after

witholding

taxes

133,245,0

00

129,600,0

00

271,350,0

00

303,102,0

00

338,664,2

40

378,493,9

49

423,103,2

23

Salvage

value

Exchange

rate - baht0.02300 0.02254 0.02209 0.02165 0.02121 0.02079 0.02037 0.01997

CF to

parent3,003,342 2,862,760 5,874,026 6,430,148 7,040,890 7,711,578 8,448,054

PV of

parent CF

(25%

discount

rate)

2,402,674 1,832,167 3,007,501 2,633,788 2,307,159 2,021,544 1,771,685

Initial

investment

by parent

12,650,00

0

Cumulativ

e PV

-

10,247,32

6

-8,415,160 -5,407,658 -2,773,870 -466.711 1,554,833 3,326,518

PROBLE

M # 5Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Demand -

Entertain

ment

Products

5 5 5 5 5 5

Price per

unit - baht5.6 6.272 7.025 7.868 8.812 9.869

Page 8: tugas kasus ifm blade

Revenue

from

agreement

028,000,00

0

31,360,00

0

35,123,20

0

39,337,98

4

44,058,54

2

49,345,56

7

Other

retailers120 120 220 220 220 220 220

Price per

unit -  baht5 5.6 6.272 7.025 7.868 8.812 9.869

Revenue

from other

retailers

600,000,0

00

672,000,0

00

1,379,840,

000

1,545,420,

800

1,730,871,

296

1,938,575,

852

2,171,204,

954

Total

revenue

600,000,0

00

700,000,0

00

1,411,200,

000

1,580,544,

000

1,770,209,

280

1,982,634,

394

2,220,550,

521

Variable

cost per

unit

3.5 3.92 4.39 4.917 5.507 6.168 6.908

Total

variable

cost

420,000,0

00

490,000,0

00

987,840,0

00

1,106,380,

800

1,239,146,

496

1,387,844,

076

1,554,385,

365

Less: cost

savings

32,400,00

0

Other

fixed

expenses

25,000,00

0

28,000,00

0

31,360,00

0

35,123,20

0

39,337,98

4

44,058,54

2

49,345,56

7

Depreciati

on

30,000,00

0

30,000,00

0

30,000,00

0

30,000,00

0

30,000,00

0

30,000,00

0

30,000,00

0

Total

expenses

442,600,0

00

548,000,0

00

1,049,200,

000

1,171,504,

000

1,308,484,

480

1,461,902,

618

1,633,730,

932

EBT of

susidiary

157,400,0

00

152,000,0

00

362,000,0

00

409,040,0

00

461,724,8

00

520,731,7

76

586,819,5

89

Host

governme

nt tax

(25%)

39,350,00

0

38,000,00

0

90,500,00

0

102,260,0

00

115,431,2

00

130,182,9

44

146,704,8

97

After tax

earnings

of

subsidiary

118,050,0

00

114,000,0

00

271,500,0

00

306,780,0

00

346,293,6

00

390,548,8

32

440,114,6

92

NCF to

subsidiary

148,050,0

00

144,000,0

00

301,500,0

00

336,780,0

00

376,293,6

00

420,548,8

32

470,114,6

92

Baht

remitted

by

susidiary

148,050,0

00

144,000,0

00

301,500,0

00

336,780,0

00

376,293,6

00

420,548,8

32

470,114,6

92

Page 9: tugas kasus ifm blade

Witholdin

g tax on

remitted

funds

(10%)

14,805,00

0

14,400,00

0

30,150,00

0

33,678,00

0

37,629,36

0

42,054,88

3

47,011,46

9

Baht

remitted

after

witholding

taxes

133,245,0

00

129,600,0

00

271,350,0

00

303,102,0

00

338,664,2

40

378,493,9

49

423,103,2

23

Salvage

value

Exchange

rate - baht0.02300 0.02185 0.02076 0.01972 0.01873 0.01780 0.01691 0.01606

CF to

parent2,911,403 2,690,172 5,350,920 5,678,205 6,027,194 6,399,240 6,795,781

PV of

parent CF

(25%

discount

rate)

2,329,123 1,721,710 2,739,671 2,325,793 1,974,991 1,677,522 1,425,179

Initial

investment

by parent

12,650,00

0

Cumulativ

e PV

-

10,320,87

7

-8,599,167 -5,859,496 -3,533,703 -1,558,712 118.81 1,543,989

Page 10: tugas kasus ifm blade
Page 11: tugas kasus ifm blade

Year 8 Year 9 Year 10

180 180 180

4.594 4.594 4.594

826,920,0

00

826,920,0

00

826,920,0

00

220 220 220

11.053 12.38 13.865

2,431,749,

548

2,723,559,

494

3,050,386,

633

3,258,669,

548

3,550,479,

494

3,877,306,

633

7.737 8.666 9.706

3,094,953,

970

3,466,348,

447

3,882,310,

260

55,267,03

5

61,899,07

9

69,326,96

9

Page 12: tugas kasus ifm blade

30,000,00

0

30,000,00

0

30,000,00

0

3,180,221,

006

3,558,247,

526

3,981,637,

229

78,448,54

3-7,768,032

-

104,330,5

96

19,612,13

6-1,942,008

-

26,082,64

9

58,836,40

7-5,826,024

-

78,247,94

7

88,836,40

7

24,173,97

6

-

48,247,94

7

88,836,40

7

24,173,97

6

-

48,247,94

7

8,883,641 2,417,398 -4,824,795

79,952,76

6

21,756,57

8

-

43,423,15

2

650,000,0

00

0.01957 0.01918 0.01879

1,564,480 417.20811,399,20

1

262.476 55.997 1,223,980

Page 13: tugas kasus ifm blade

1,368,494 1,424,490 2,648,470

Year 8 Year 9 Year 10

5 5 5

11.053 12.38 13.865

55,267,03

5

61,899,07

9

69,326,96

9

220 220 220

11.053 12.38 13.865

2,431,749,

548

2,723,559,

494

3,050,386,

633

2,487,016,

583

2,785,458,

573

3,119,713,

602

7.737 8.666 9.706

1,740,911,

608

1,949,821,

001

2,183,799,

521

55,267,03

5

61,899,07

9

69,326,96

9

30,000,00

0

30,000,00

0

30,000,00

0

1,826,178,

644

2,041,720,

081

2,283,126,

490

660,837,9

40

743,738,4

93

836,587,1

12

Page 14: tugas kasus ifm blade

165,209,4

85

185,934,6

23

209,146,7

78

495,628,4

55

557,803,8

69

627,440,3

34

525,628,4

55

587,803,8

69

657,440,3

34

525,628,4

55

587,803,8

69

657,440,3

34

52,562,84

5

58,780,38

7

65,744,03

3

473,065,6

09

529,023,4

82

591,696,3

00

650,000,0

00

0.01957 0.01918 0.01879

9,256,73510,144,65

9

23,334,79

4

1,553,022 1,361,593 2,505,554

4,879,541 6,241,134 8,746,688

Year 8 Year 9 Year 10

Page 15: tugas kasus ifm blade

5 5 5

11.053 12.38 13.865

55,267,03

5

61,899,07

9

69,326,96

9

220 220 220

11.053 12.38 13.865

2,431,749,

548

2,723,559,

494

3,050,386,

633

2,487,016,

583

2,785,458,

573

3,119,713,

602

7.737 8.666 9.706

1,740,911,

608

1,949,821,

001

2,183,799,

521

55,267,03

5

61,899,07

9

69,326,96

9

30,000,00

0

30,000,00

0

30,000,00

0

1,826,178,

644

2,041,720,

081

2,283,126,

490

660,837,9

40

743,738,4

93

836,587,1

12

165,209,4

85

185,934,6

23

209,146,7

78

495,628,4

55

557,803,8

69

627,440,3

34

Page 16: tugas kasus ifm blade

525,628,4

55

587,803,8

69

657,440,3

34

525,628,4

55

587,803,8

69

657,440,3

34

52,562,84

5

58,780,38

7

65,744,03

3

473,065,6

09

529,023,4

82

591,696,3

00

0

0.01957 0.01918 0.01879

9,256,73510,144,65

9

11,119,55

6

1,553,022 1,361,593 1,193,953

4,879,541 6,241,134 7,435,087

Year 8 Year 9 Year 10

5 5 5

11.053 12.38 13.865

Page 17: tugas kasus ifm blade

55,267,03

5

61,899,07

9

69,326,96

9

220 220 220

11.053 12.38 13.865

2,431,749,

548

2,723,559,

494

3,050,386,

633

2,487,016,

583

2,785,458,

573

3,119,713,

602

7.737 8.666 9.706

1,740,911,

608

1,949,821,

001

2,183,799,

521

55,267,03

5

61,899,07

9

69,326,96

9

30,000,00

0

30,000,00

0

30,000,00

0

1,826,178,

644

2,041,720,

081

2,283,126,

490

660,837,9

40

743,738,4

93

836,587,1

12

165,209,4

85

185,934,6

23

209,146,7

78

495,628,4

55

557,803,8

69

627,440,3

34

525,628,4

55

587,803,8

69

657,440,3

34

525,628,4

55

587,803,8

69

657,440,3

34

Page 18: tugas kasus ifm blade

52,562,84

5

58,780,38

7

65,744,03

3

473,065,6

09

529,023,4

82

591,696,3

00

650,000,0

00

0.01526 0.01450 0.01377

7,218,352 7,668,58517,099,33

7

1,211,039 1,029,260 1,836,027

2,755,027 3,784,287 5,620,315

Page 19: tugas kasus ifm blade

Case 9

1. There are several ways Blades can benefit. Blades generates baht-denominated cash

inflows and then converts them to U.S. dollars. Forecasting the exchange rate may allow

Blades to make hedging decisions. Furthermore, it is mentioned that Blades may establish

a subsidiary in Thailand. If this was to happen, profits earned by this subsidiary will be

in baht. These earnings will then be sent back to the parent or reinvested in Thailand. In

both scenarios forecasting exchange rate is vital for company’s future.

2. A market-based forecast is the easiest to use because it is based on either spot rate or the

forward rate. In this case it would be better to use forward rates.

3. The forward rates would yield a better market-based forecast. It is said that the available

forward rates currently exhibit a large discount, which implies higher interest rate, which

then implies higher inflation. Higher inflation is associated with a downward pressure on

the baht, which is a valid forecast. Using the present spot rate to forecast future spot rate

would mean that the value of the baht would not fluctuate, which is not likely to happen.

4.

market-based forecast -

By using the forward rate market-based forecast it is shown that baht is expected to

change by -8.70 percent. The value of the baht in 90 days according to this forecast will

-0.08696

be $0.021.

5. Weekly accuracy of technical forecast indicates market inefficiency for the baht-dollar

exchange rates. Technical forecasting involves the use of historical exchange rate data to

predict future rates and mostly apply to very shot-term periods such as one day. Given

Page 20: tugas kasus ifm blade

the conditions Thailand is in, examination of past movements will not be useful for

indicating future rates.

6.

fundamental forecast -

The expected change using the fundamental forecast is -6.85 percent.

-0.0685

forecasted value of the baht -

The forecasted value of the baht using the expected value as the forecast is $.0214.

absolute error- technical forecasting -

absolute error- fundamental forecasting -

absolute error- market-based forecasting -

0.021425

-0.01727

-0.02614

-0.04545

The absolute forecast errors are as follows: technical forecasting – 1.73%; fundamental

forecasting – 2.61%; and the market-based forecast – 4.54%. Observing given forecasting

techniques and their absolute errors the conclusion arises that the most accurate technique

is the technical forecasting.

7. It will not. As mentioned earlier, technical forecasting involves the use of historical

exchange rate data to predict future rates. Examination of past movements will

most likely not be as useful for indicating future rates in Thailand. There are a lot of

uncertainties when it comes to exchange rates in this country. There is a high volatility

of the baht-dollar exchange rate. In addition, Thai economy is experiencing unfavorable

conditions that will have an affect on exchange rates.