Reference no: EM131115267
It is September 1990 and Detroit Motors of Detroit, Michigan, is considering establishing an assembly plant in Latin America for a new utility vehicle it has just designed. The cost of the capital expenditures has been estimated at $65,000,000. There is not much of a sales market in Latin America, and virtually all output would be exported to the United States for sale. Nevertheless, an assembly plant in Latin America is attractive for at least two reasons. First, labor costs are expected to be half what Detroit Motors would have to pay in the United States to union workers. Since the assembly plant will be a new facility for a newly designed vehicle, Detroit Motors does not expect any hassle from its U.S. union in establishing the plant in Latin America. Secondly, the chief financial officer (CFO) of Detroit Motors believes that a debt-for-equity swap can be arranged with at least one of the Latin American countries that has not been able to meet its debt service on its sovereign debt with some of the major U.S. banks.
The September 10, 1990, issue of Barron's indicated the following prices (cents on the dollar) on Latin American bank debt:
Brazil ...... 21.75
Mexico ....... 43.12
Argentina ..... 14.25
Venezuela ..... 46.25
Chile ....... 70.25
The CFO is not comfortable with the level of political risk in Brazil and Argentina, and has decided to eliminate them from consideration. After some preliminary discussions with the central banks of Mexico, Venezuela, and Chile, the CFO has learned that all three countries would be interested in hearing a detailed presentation about the type of facility Detroit Motors would construct, how long it would take, the number of locals that would be employed, and the number of units that would be manufactured per year. Since it is time-consuming to prepare and make these presentations, the CFO would like to approach the most attractive candidate first. He has learned that the central bank of Mexico will redeem its debt at 80 percent of face value in a debt-for-equity swap, Venezuela at 75 percent, and Chile 100 percent. As a first step, the CFO decides an analysis based purely on financial considerations is necessary to determine which country looks like the most viable candidate. You are asked to assist in the analysis. What do you advise?
|
How do feel about allowing sensory tools in the classroom
: Sensory Tools are becoming more accepted in the school setting. How do you feel about allowing sensory tools in the classroom and how would you allow students to use them in your classroom?
|
|
How would such a value be calculated for net royalty receipt
: What basis of valuation for Ferry's patents would be generally accepted in accounting? Give supporting reasons for this basis.
|
|
Why the demand curve slopes downward
: How society manages its scarce resources and benefits from economic interdependence? Why the demand curve slopes downward and the supply curve slopes upward? Where is the point of equilibrium and what does it determine?
|
|
Liquidity of investment
: The few promoters of venture capital are risk averse and therefore are discouraged by the level of risk, the length of investment and the liquidity of investment.
|
|
As a first step, the cfo decides an analysis based purely
: As a first step, the CFO decides an analysis based purely on financial considerations is necessary to determine which country looks like the most viable candidate. You are asked to As a first step, the CFO decides an analysis based purely on financia..
|
|
Problem regarding the common shares
: Preference shares are considered as hybrid securities since they are similar to both common shares and debentures. They are similar to common shares in the following ways.
|
|
Discuss how government policy can influence economic growth
: Discuss how government policies can influence economic growth. Analyze how monetary policy could influence the long-run behavior of price levels, inflation rates, costs, and other real or nominal variables.
|
|
Find the values of ?m at which the machine can develop
: At each of the speeds obtained in part (a), determine the maximum value of the average torque an d the maximum mechanical power output.
|
|
The shopping center would have opened on schedule on january
: Accounting for Pre-Opening Costs After securing lease commitments from several major stores, Auer Shopping Center, Inc. was organized and built a shopping center in a growing suburb.
|