Reference no: EM131528180

Risk Assessment

Prime Emerald Inc. is an upscale rug manufacturer in Flint, Michigan. Recently many Prime investors have petitioned for the rug manufacturer to acquire a foreign retailer in China "Rug Emporium" despite the economic state due to their client base and recent need of cash flow. The price of the retailer will be 1.7 billion in the country's currency, but it has come to the CFO's attention that it may not be a bad idea to establish a subsidiary for Prime considering a subsidiary would generate a better NPV or net present value. Considering that China has many risks, Prime has a big decision on whether to acquire or start anew.

Review the following case study:

In 1 to 2 pages:

• Explain Prime Emerald's possible success acquiring an existing retail business or establishing a new subsidiary considering the country risk factors.

o Consider that MNCs measure political country risks in terms of likelihood of consumers and their act of purchasing locally produced products, any block of funds transfers, war of any kind, any host government movements against the MNC, bureaucratic issues and even currency that is not convertible.

• Explain if Prime can encounter such risks and issues.

o Reference the many financial risks that Prime can encounter including gross domestic product, interest rates, inflation and exchange rates.

• Overall give a recommendation what Prime should consider between acquiring Rug Emporium or establishing a new subsidiary because of NPV and explain your rationale as to why they should consider your recommendation.