Question

Construct a spreadsheet that compares the cash flows resulting from two plans. Under the first plan net baht denominated cash flows (received today) will be invested in Thailand at 15 percent for one year period, after which the bah will be converted to Australian dollars. The expected spot rate for the Baht in one year is about A%0.0361 (Ben Holts plan). Under the second plan, net baht denominated cash flows are converted to Australian dollars and ind immediately invested in Australia for one year at 8 per cent. For the question, assume that all baht denominated cash flows are due today. Does Holt's plan seem superior in terms of Australian dollar cash flows available after one year? Compare the choice of investing the funds versus using the funds to provide needed financing to the company.

Answer 1

NOTE: I believe this excerpt is the part of 'Blades Inc.' Case study which talks about Blades, exporting roller blades - SPEEDOS to thailand. Since i am aware of this case study, so answering this question keeping that as a background. If this is some different case study, then please mention it in the comments section

The numbers in the below solution might be different than what you have in your case study. Please update those as required.

Assumption: Spot rate now = Spot rate in 1 year = 0.0361

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Solution:

B C Ben Holt's Plan Plan 2. Immediate Conversion 4,594 Calculation of baht-denominated revenue: Price per pair of Speedos Pairs of Speedos Baht-denominated revenue 180000 826920000 4,594 180000 826920000 1 Plan 1- 2 3 Calculation of baht-denominated revenue: 4 Price per pair of Speedos 5 Pairs of Speedos 6 Baht-denominated revenue 7 8 Calculation of baht-denominated CoGS: 9 Cost of goods sold per pair of Speedos 10 Pairs of Speedos 11 Baht-denominated outflow 12 13 Calculation of conversion of baht into dollars: 14 Net baht-denominated cash flows 15 Interest earned on baht -15% 16 Baht to be converted in 1-year 17 Expected spot rate of baht in one year 18 Expected dollar receipts in one year 2,871 72,000 206712000 Calculation of baht-denominated CoGS: Cost of goods sold per pair of Speedos Pairs of Speedos Baht-denominated outflow 2,871 72,000 206712000 620208000 93031200 713,239,200 0.0361 25747935.12 Dollar value due to conversion of baht into $ : Net baht-denominated cash flows to be converted Spot rate of baht now Dollar receipts now Interest earned on $ over a 1-year period Dollar receipts in 1-Y 620208000 0.0361 22389508.8 1791160.704 24180669.5

19 $ 1,507 20 Calculation of dollar difference between the two plans: 21 Plan 1 $ 25,747,935.12 22 Plan 2 $ 24,180,669.50 23 Dollar difference 1,567,265.62 24 25 By looking at the values of plan 1 and plan 2, it can be ascertained that using a 26 spot rate and 1-Y spot rate as 0.0361, plan 11(Ben holts plan) is more profitable 27 and should be implemented. 28 29

FORMULAE

:

Ben Holt's Plan Plan 2 - Immediate Conversion 4594 180000 =B5*B4 Calculation of baht-denominated revenue: Price per pair of Speedos Pairs of Speedos Baht-denominated revenue 4594 180000 =E5E4 2871 72000 =B10*B9 Calculation of baht-denominated COGS: Cost of goods sold per pair of Speedos Pairs of Speedos Baht-denominated outflow 2871 72000 =E10*E9 1 Plan 1- 2. 3 Calculation of baht-denominated revenue: 4 Price per pair of Speedos 5 Pairs of Speedos 6 Baht-denominated revenue 7 8 Calculation of baht-denominated COGS: 9 Cost of goods sold per pair of Speedos 10 Pairs of Speedos 11 Baht-denominated outflow 12 13 Calculation of conversion of baht into dollars: 14 Net baht-denominated cash flows 15 Interest earned on baht -15% 16 Baht to be converted in 1-year 17 Expected spot rate of baht in one year 18 Expected dollar receipts in one year 19 20 Calculation of dollar difference between the two plans: 21 Plan 1 22 Plan 2 23 Dollar difference =B6-B11 =15%*B14 =B14+B15 0.0361 =B17*B16 Dollar value due to conversion of baht into Net baht-denominated cash flows to be conver=E6-E11 Spot rate of baht now 0.0361 Dollar receipts now =E15*E14 Interest earned on $ over a 1-year period =E16*0.08 Dollar receipts in 1-Y =SUM(E16:E17) =B18 =E18 =B21-B22 24

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