Assignment task:
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From the Skates'n'Stuff case study from Week 1, assuming high unemployment in Thailand and taking Blades' unique production process into account, predict the reaction that the Thai government might have to Blades making a DFI in Thailand.
Blades', Inc. brought in a net income of $3.5 million within the first year of production. However, the production has slowed down drastically; the most recent rate of return reported was only 7%. Also, the stock price has dropped from $20 per share in the past 3 years to a low of $12. The consideration of Blades' Inc. making a direct foreign investment (DFI) in Thailand could be beneficial to the company. The outcome of engaging in DFI, could boost revenue and/or reduce cost for the MNC. Blades' making a DFI in Thailand would help with reducing cost for the company; it can purchase the components for their roller blades at a lower price since they have high quality components. Also, the DFI can increase economic growth within Thailand. The advantage of a DFI, it can create jobs within the country which could reduce the unemployment rate.
Determine the appropriate fixed price denominated in Thai baht that the Thai government should use when assessing the viability of this project.
For a long-term production such as Blades' DFI in Thailand, it is best for the MNC to complete a capital budgeting analysis. The MNC should approve of the project if the present value of estimated future cash flows to be received by the parent exceeds the initial outlay. Also, the net present value (NPV) should be stable and present a positive cash flow for the MNC.