project to produce computers in Thailand, for sale in the US market.

Subject: Business    / Finance

Problem 8. Your company is considering a direct investment project to produce computers in Thailand, for sale in the US market. This will be partially financed by US dollar debt, and partially financed by issuing stock in Thailand.

Your boss instructs you to conduct an NPV analysis by estimating cash flows in USD terms, and discounting at an appropriate rate. He states that the stock issuance in Thailand should be used to determine the marginal cost of equity for the firm.

After some thought, you come up with the following assumptions:

The project will cost USD200mn in Year 0, and have a terminal value of USD50mn in Year 10.
The project will begin production in Year 1. It will produce 30,000 computers yearly in Years 1-10, at an initial price of USD2,000 per computer in Year 1. The price will increase at the US inflation rate of 2% per year.
Costs are expected to be 30,000 Thai baht (THB) per computer in Year 1, and will increase at the Thai inflation rate of 7% per year.
The spot exchange rate in Year 1 is expected to be 30 THB per USD. The exchange rate will be determined by relative purchasing power parity after that.
The firm’s benchmark USD bond was issued at a yield of 6%. It currently trades at a yield of 7%.
The firm’s capital structure is 40% equity, 60% debt.
You believe that the CAPM is the correct way to estimate the cost of equity capital, using a local market index as a benchmark. The Thai risk-free rate is 8%, the expected return on the Thai market is 12%, and the beta you expect on your stock is 1.5.
You believe that the International Fisher Effect is a useful method for comparing the cost of capital across countries.

5.1. What is the cost of equity capital in THB terms? What is the cost of equity capital in USD terms? What is the weighted average cost of capital for the firm?

5.2 Given the assumptions above, should the firm proceed with this project? What is the project’s NPV?

5.3 Suppose the expected Thai inflation rate increased to 12% per year, but all of the other assumptions remained unchanged. What is the project’s NPV? Should the firm proceed with this project or not?


 

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Communicate your own responsibility ethics and efficiency in dealing with this problem and make some sensible suggestions about how the situation could be managed from now on.

Professional & E-Business Writing
Business Letter and Memo
Because you will need to write for different audiences in a variety of settings it is important to be able to change the tone of your writing to suit the situation. The assignment requires you to adapt your tone content and emphasis for a different audiences and business formats.
Tone
Tone is about attitude and feeling including the extent of friendliness or warmth and formality or informality that the reader can perceive in your communication. In face-to-face conversation tone is evident from your facial expression amount and nature of eye contact pitch and rate of speech and other such factors. In writing tone is conveyed by the words you use that have pleasant or unpleasant connotations or by any indication that you are angry bored or indifferent to the readers needs. Your message may be perceived as discourteous if you have not taken the time to ensure that the tone is appropriate. Words such as insist mistaken failed neglected and compulsory have unfavourable connotations sound judgmental and annoy the reader.
Tasks
Write a letter and a memo for different scenarios provided below. In real life you would never fabricate details for your business communications but for the purpose of this assignment please invent any relevant details needed (such as names actions and circumstances) to complete the writing activities.
Task 1: Business letter
Scenario:
You are the marketing communications manager at Blaze a national newspaper that is published once per week. The latest edition had a half-page advertisement in it from Major Makeovers an expensive beauty clinic. The advertisement included a picture of Jesus descending from the clouds. The text claimed: Hes coming soon! Are you cleansed prinked and looking good enough? and offered a discounted weekend top-to-toe beauty treatment.
Major Makeovers often places advertisements in Blaze and the same is true of Saints Alive a powerful charismatic country-wide church. The day after the makeover advertisement was published you received an angry letter from Pastor Matthew Sykes. The second coming of our Lord is not a joke he wrote. Moreover God does not judge people by their appearance. This advertisement insults our beliefs and the things we hold holy. You would not have published an advertisement mocking Mohammed because Muslims would rise against you. Well our response is to withdraw our advertisements from your paper. We also demand a public apology.
The newspaper received five letters of complaint from other Christians and also ironically one from the Atheist Society. The latter complained that Blaze was pushing Jesus down their throats.
Instructions
Write in your own name as the marketing communications manager. Produce a full block or block modified 400-word letter using open punctuation addressed to Pastor Matthew Sykes. The letter should show that the newspaper is taking his complaint seriously but should not compromise the papers commitment to freedom of opinion and speech. However you must try to regain Saints Alives goodwill towards the paper and retain its advertising business for future editions.
Task 2: Memo
Scenario
You are the branch manager of the Albany office of Property Plus an estate agency which has offices in 12 North Island cities. A major problem has arisen with one of the properties under your care. The tenants used their rented house as a P lab and have apparently been cooking methamphetamine there for the last 18 months. This is grim news for the house owner and Property Plus.
The property manager Ms Jinny Downs who is your subordinate did attempt to make two routine property checks during the tenancy but she felt intimidated on the first occasion and was told not to enter the rear section of the house on her second visit Because the baby is sleeping. However an anonymous tip-off by a member of the public to police led to a raid last night the lab was discovered and the tenants arrested.
The property is seriously contaminated by the chemicals and cannot be lived in without substantial renovation and detoxification. The elderly property owner Mrs Amanda Tonkin whom you informed this morning is devastated because this house was an investment for her retirement. She is also angry because she entrusted her property to your agency. She is threatening to speak to the press or better still to air the matter on Fair Go or Close Up.
Instructions
Write in your own name as the branch manager. Produce a confidential 400-word memorandum to your boss Mr John Volker Property Plus National Director. Briefly describe the incident and your immediate response to it. Communicate your own responsibility ethics and efficiency in dealing with this problem and make some sensible suggestions about how the situation could be managed from now on. Various issues may be addressed: health and safety of Property Plus staff and future tenants; the potential for bad publicity and financial losses for the company as a whole if the matter is made public; damage control; how to avoid a repetition of this problem in other rented properties and so on.
219.202 Assignment 1 marking schedule
Poor Satisfactory Good Excellent
Letter
Format
Specific subject line
BLUF and appropriate directness
Structure of content
Quality of information/comments in body
Tone appropriate to audience
You attitude
Positive close
Memo
Format
Specific subject line
Appropriate opening paragraph
Appropriate directness
Visual design/readability
Structure of content
Quality of information in body
Comprehensive summary of actions
Analysis of own decisions/actions
Sensible suggestions
Focus on action not blame
Tone appropriate to audience
Positive close
Overall
Spelling pun


 

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Frequent fliers of a certain airline fly a random number of miles each

Frequent fliers of a certain airline fly a random number of miles each year, having mean and standard deviation of 25,000 and 12,000 miles, respectively. If 30 such people are randomly chosen, ap- proximate the probability that the average of their mileages for this year will exceed 25,000; be between 23,000 and 27,000.


 

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What time series components appear?

The Research and Innovative Technology Administration’s Bureau of Transportation Statistics conducted a study to evaluate the impact of the September 11, 2001 terrorist attack on US transportation. The 2006 study report and the data can be found at http://goo.gl/w2lJPV. The goal of the study was stated as follows:The purpose of this study is to provide a greater understanding of the passenger travel behavior patterns of persons making long distance trips before and after 9/11.The report analyzes monthly passenger movement data between January 1990 and May 2004. Data on three monthly time series are given in file Sept11Travel.csv for this period: (1) Actual airline revenue passenger miles (Air), (2) rail passenger miles (Rail), and (3) vehicle miles traveled (Car).In order to assess the impact of September 11, BTS took the following approach: using data before September 11, they forecasted future data (under the assumption of no terrorist attack). Then, they compared the forecasted series with the actual data to assess the impact of the event. Our first step, therefore, is to split each of the time series into two parts: pre- and post September 11. We now concentrate only on the earlier time series. Plot the pre-event AIR time series. What time series components appear? The following figure shows a time plot of the seasonally adjusted pre-September-11 AIR series. Which of the following methods would be adequate for forecasting the series shown in the figure? Linear regression model seasonality Linear regression model with trend Linear regression model with trend and seasonality Specify a linear regression model for the AIR series that would produce a seasonally adjusted series similar to the one shown in the figure below, with multiplicative seasonality. What is the outcome variable? What are the predictors? Run the regression model from (3). Remember to use only pre-event data. What can we learn from the statistical insignificance of the coefficients for October and September? The actual value of AIR (air revenue passenger miles) in January 1990 was 35.153577 billion. What is the residual for this month, using the regression model? Report the residual in terms of air revenue passenger miles. Create an ACF (autocorrelation) plot of the regression residuals. What does the ACF plot tell us about the regression model’s forecasts? How can this information be used to improve the model? Fit linear regression models to Air, Rail, and to Auto with additive seasonality and an appropriate trend. For Air and Rail, fit a linear trend. For Rail, use a quadratic trend. Remember to use only pre-event data. Once the models are estimated, use them to forecast each of the three post-event series. For each series (Air, Rail, Auto), plot the complete pre-event and post-event actual series overlayed with the predicted series. What can be said about the effect of the September 11 terrorist attack on the three modes of transportation? Discuss the magnitude of the effect, its time span, and any other relevant aspects.


 

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