Question

Assume that you wanted to expand your Learning English business to other non-U.S. countries where some individuals may want to speak English.

a.   Explain why you might be able to stabilize the profits of your total business in this manner. Review the motives for direct foreign investment that are identified in this chapter. Which of these motives are most important?

b.  Why would a city such as Montreal be a less desirable site for your business than a city such as Mexico City?

c.  Describe the conditions in which your total business would experience weak effects even if the business was spread across 3 or 4 countries.

d.  What factors affect the probability of these conditions occurring? (In other words, explain why the conditions could occur in one set of countries, but not another set of countries).

e.  What data would you review to assess the probability of these conditions occurring?

f.   Consider that the prevailing service you offer is teaching individuals in Mexico to speak English, and your business has already created some supplemental pamphlets and CDs that translate common Spanish terms into English. How could you expand your business in a manner that may allow you to benefit from economies of scale (and perhaps even benefit from your existing business reputation)? When you attempt to benefit from economies of scale, do you forgo diversification benefits? Explain.

g.  How would you come to a decision on whether to pursue business expansion that capitalizes on economies of scale even if it would forgo diversification benefits? Do you think economies of scale would be more important or less important than diversification for your business?

h.  Is there any way to achieve economies of scale and yet still achieve diversification benefits?

2 - a.  Review the different items that are used in the multinational capital budgeting example (Spartan Inc.). Describe the items that would be included on a spreadsheet if you were to conduct a multinational capital budgeting analysis of investing dollars to expand your existing language business in a different location.

b.   Assume that you recognize your limitations in predicting the future exchange rate of the invoice currency for your expanded business. You think that there are several possible exchange rate scenarios, each with equal probability of occurrence. Explain how you could use this information to estimate the future NPV and make a decision about whether to accept or reject the project.

c. Now assume that there is also much uncertainty about the demand for your service by individuals. Explain how you can attempt to incorporate this uncertainty along with the uncertainty of exchange rate movements so that you can make a decision about whether to accept or reject the project.

d. Explain how you would derive a required rate of return for your capital budgeting analysis. What type of information would you use to derive the required rate of return?

Answer 1

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Explain why you might be able to stabilize the profits of your total business in this manner. Review the motives for direct foreign investment that are identified in this chapter. Which of these motives are most important?  

Training people is a very important asset that can help my company to sustain its income. To handle the training it is also important for people in the region who have grown their company to understand the language they speak. The most important thing to apply to the motives listed is that the services that my company provides should be requested.

You have to be aware of the competition in the area when selecting the nation to expand the business and that will help you to dominate in the market. Always sure that your company provides the best product on the market, which offends the other businesses providing the same product. Yet in a country in which people are granted a free system providing English learning facilities, it is difficult.

Why would a city such as Montreal be a less desirable site for your business than a city such as Mexico City?

The city of Montreal speaks English by the majority of the inhabitants of this area. The market for the services provided by my company is, therefore, limited in that area. While the Mexico City is a city where by every few people know English. There is therefore a great demand in this city for English learning.

The demand for an offered service is the goal of all our troubles in the particular region. If the demand for service or product is very low , the company will fall or profit is low. In view of those two towns, it should be the case that people do not know English in the area, as this creates a demand gap. Montreal is therefore attractive for the company since the demand for service is very small.

Describe the conditions in which your total business would experience weak effects even if the business was spread across 3 or 4 countries.

It is advisable to pick the country you are going to invest in the company while expanding a business internationally. Several factors are important for a country 's decision. In expanding your business, the country's economic status also plays a major role in political stability. So also the desire for the nation's service. In view of these factors, one should invest in the best of the country to achieve its business objectives.

Dissemination of an company in many countries does not guarantee a strong impact for your business. There are factors that can have poor consequences for your company even if it spreads to several countries. When you have invested in the companies from country to country with poor economic conditions. Secondly, if the facilities provided in the countries are in low demand.

What factors affect the probability of these conditions occurring? (In other words, explain why the conditions could occur in one set of countries, but not another set of countries).

It should be monitored and regulated whether conditions that cause business to experience poor effects as it may end up making a profit which is worth accommodating the business on the market.

A company that is under persistent economic stress is a situation that can be related over time to the economies of the countries. It is an unpredictable element that can contribute to this. Second, lack of investments research in the country will lead to low demand in countries learning the language. And investment in the same geographical area also applies to the nations. These are some of the factors that cause such impacts to undermine the operations of a organization.

What data would you review to assess the probability of these conditions occurring?

I 'd like to use historical details. Historical information is the information that has been kept for a long time. Historical information typically allows people to predict the future or event patterns. Therefore, the probability of weak economic conditions in those countries in which the company is engaged could assess such historical data. It is also possible to use historical data to assess whether the country has the language information you want to provide its learning services.

Consider that the prevailing service you offer is teaching individuals in Mexico to speak English, and your business has already created some supplemental pamphlets and CDs that translate common Spanish terms into English. How could you expand your business in a manner that may allow you to benefit from economies of scale (and perhaps even benefit from your existing business reputation)? When you attempt to benefit from economies of scale, do you forgo diversification benefits? Explain.

I could do much of the magnitude savings. It is through the expansion of my company in Mexico to draw on the economies of scale. Considering that the company in Mexico is already developed and profitable, I can also reap the advantages of business reputations because many of the customers believe that they are good. Nonetheless, it's still new in the area when I grow my company in a new country, so it's very difficult to get recognize from clients.

How would you come to a decision on whether to pursue business expansion that capitalizes on economies of scale even if it would forgo diversification benefits? Do you think economies of scale would be more important or less important than diversification for your business?

The main purpose is to make profit by starting any company. Profits of a company can only be achieved when the company benefits overweight the cost of the benefits. If a business spends more than it raises, it loses and should be stopped if the pattern continues past an insupportable cap.I just need to determine the benefits and the expense of the business in this situation. And it will be easier for me to grow my business in Mexico and to give up a diversification advantage that could expand the business in May. Since I already have a successful business and have a headquarters in Mexico where I grow the other company, this adds prestige. Finally, training new workers is very easy.

Is there any way to achieve economies of scale and yet still achieve diversification benefits?

Absolutely yes, when the company is expanding in another Mexican area. It would offer both benefits in diversification and scale economics. The explanation for this is that in its original industry the profits of its citizens are impacted or affected. In the other city, the income of the persons residing in the other city is affected. The income of the individual is different in the two cities and does not adjust in the same way. However, there is some connection between the income of the two cities and there is not just diversity.

Review the different items that are used in the multinational capital budgeting example (Spartan Inc.). Describe the items that would be included on a spreadsheet if you were to conduct a multinational capital budgeting analysis of investing dollars to expand your existing language business in a different location.

Gross sales also need to be calculated using demand and product prices. In addition, when we provide supplementary materials, we can experience differences in the cost per unit. The annual cost of leasing that is the leasing of something to be used in the company. First, the cost of depreciation is the expense of purchasing equipment because the value is depreciated. Often include the host state fee. And the after-tax profit and net cash to the subsidiary can be generated. Withholding tax sometimes may be included.The rescue interest is provided if the company is expected to be sold once. It is because the company is known for having developed and also developed a program and a reputation for teaching English. Lastly, include the initial investment which is set in the business. The main aim of this is to measure the current net worth.

Assume that you recognize your limitations in predicting the future exchange rate of the invoice currency for your expanded business. You think that there are several possible exchange rate scenarios, each with equal probability of occurrence. Explain how you could use this information to estimate the future NPV and make a decision about whether to accept or reject the project.

Basically, the potential NPV is estimated and the project state is eventually decided. It is a technique that I can use to evaluate, primarily, how indie variables influence a dependent variable when the number of assumptions is set.An analysis of sensitivity may be rendered using a net present value equivalent to or relating to each scenario of exchange rates. I then test the distribution of NPVs after deriving the net present value. Therefore, the distribution will demonstrate the project's ability to generate a positive NPV. If it appears that a negative NPV may be created, the project must be rejected. Otherwise fail to reject the project.

Now assume that there is also much uncertainty about the demand for your service by individuals. Explain how you can attempt to incorporate this uncertainty along with the uncertainty of exchange rate movements so that you can make a decision about whether to accept or reject the project.

Application of the sensitivity analysis can be used to incorporate the uncertainty of lack of demand of my service together with the uncertainty of exchange rate movements. In making a decision to accept and also reject the project. This can be achieved by allowing the possible outcome for both demand and the exchange rate movements. Then the next move is assessing the distribution of NPVs. Therefore the distribution which is derived after this will be able to indicate the potential of the project being able to generate a positive NPV. If it generates a negative NPV then you need to reject the project, otherwise fail to reject.

Explain how you would derive a required rate of return for your capital budgeting analysis. What type of information would you use to derive the required rate of return?

In this case, my expected return rate should be able to reflect the return I have to invest in the whole project. Firstly, I must calculate the rate I might gain if I were to invest the amount in a risk-free asset called the dollar over a single time period. Third, the introduction of a risk premium to the risk-free limit. The premium will then represent the incremental return to the whole project. I 'd use the risk details involved in the project. The degree of uncertainty surrounding the demands for my service I offer and the exchange rate always underpins this risk.

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