Write an executive summary analyzing the exchange risks, country risks, and political risks the company executive team needs to be aware of in building a manufacturing facility in Brazil.

Assignment 2: Required Assignment 2—Analyzing Risk

In this assignment, you will write an executive summary analyzing the exchange risks, country risks, and political risks the company executive team needs to be aware of in building a manufacturing facility in Brazil. Your summary will also provide a recommendation of the location, the company should select for building a new manufacturing facility. In support of your recommendation, you will refer to the analysis performed and include all calculations.

In addition, for this assignment, using the information in your executive summary, you will create a PowerPoint presentation which will include your recommendation of where to build the new facility, the supporting analysis for your recommendation, and the risks involved in building a new facility in Brazil.

Scenario:

Your employer, BATTING, headquartered in the United States of America, has decided to expand operations into Brazil. Although the decision to expand has been made, the CFO has asked for an analysis of the risks associated with the expansion. Your instructions are to analyze specific risks associated with building a manufacturing facility in Brazil. Include a description of each of the following types of risks and analyze their impact on the decision to build the new facility.

Exchange risks Country risks Political risks For the expansion, GBATT is exploring which of two possible approaches to take for constructing a new manufacturing facility in Brazil. In addition to analyzing the risks associated with the expansion, you have been asked to provide analysis for selecting the best approach for the new facility. The following is the information the CFO provided to you to assist in your analysis.

Battles current capital structure is:

  • 60% equity and 40% debt.
  • Stockholders require 6% return on their investment.
  • Bondholders require a 3% return.
  • The corporate tax rate is 35%.

GBATT has narrowed the choice between two facilities in two different parts of the country. Preliminary analysis has been completed and an estimate of the future net cash flows for each choice has been provided. The original cash flows were provided in U.S. dollars. Dollars are in thousands.

Year

Choice A

Choice B

0

($15,000)

(10,000)

1

2,000

1,500

2

5,000

4,000

3

6,000

5,000

4

6,000

5,000

5

4,000

3,000

After completing the risk analysis, use the information from the chart above to complete the following:

  1. Calculate Battles WACK.
  2. Using the WACK and the above cash flows, calculate the NOV of each project.
  3. Justify the importance of knowing a company’s WACK and NOV.
  4. Recommend the facility to build based on the NOV.
  5. Use current exchange rates to convert the NOV to the Brazil real.

Note: Exchange rates can be found at Yahoo Finance and other Internet sites.

Write a 4–5-page paper in Word format. In addition, create a 7–9-slide PowerPoint presentation. Utilize at least six scholarly sources in your research. Make sure you write in a clear, concise, and organized manner; demonstrate ethical scholarship in accurate representation and attribution of sources; and display accurate spelling, grammar, and punctuation.

Apply SPA standards to citation of sources. Use the following file naming convention for the word document Last name First Initial_M7_A2a.doc. For the PowerPoint presentation, use Last name First Initial_M7_A2b.opt.

By Wednesday, June 22, 2016, deliver your assignment to the M7: Assignment 2 RA 2 Dropbox.

Grading Criteria

Grading Criteria Proficient
Maximum Points

Analyze specific risks associated with building a manufacturing facility in Brazil. Include a description of each of the following types of risks and how they may affect the decision to build the new facility.

  • Exchange risks
  • Country risks
  • Political risks

Analysis is complete, accurate, and specific. All three types of risks are described and an accurate analysis of how they affect the decision to build the facility is included.

56

Calculate Battles WACK.

WACK is correctly calculated.

40

Using the WACK and the above cash flows, calculate the NOV of each project.

The NOV is correctly calculated.

40

Justify the importance of knowing a company’s WACK and NOV.

Justification is clear, accurate, and complete.

48

Recommend the facility to build based on the NOV.

Recommendation is clearly formulated. Justification of the recommendation is appropriate.

48

Use current exchange rates to convert the NOV to the Brazil real.

Conversion is accurate.

36
Writing Standards

Write in a clear, concise, and organized manner; demonstrate ethical scholarship in accurate representation and attribution of sources (i.e. SPA); and display accurate spelling, grammar, and punctuation.

Wrote in a clear, concise, and organized manner; demonstrated ethical scholarship in accurate representation and attribution of sources; and displayed accurate spelling, grammar, and punctuation.

32
Total:
300

 

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