Solution-Production facilities in italy and china

Production facilities in italy and china

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Reference no: EM131247359

A European apparel manufacturer has production facilities in Italy and China to serve its European market, where annual demand is for 1.9 million units. Demand is expected to stay at the same level over the foreseeable future. Each facility has a capacity of 1 million units per year. With the current exchange rates, the production and distribution cost from Italy is 10 euros per unit, whereas the production and distribution cost from China is 7 euros. Over each of the next three years, the Chinese currency could rise relative to the euro by 15 percent with probability of 0.5 or drop by 5 percent with probability of 0.5. An option being considered is to shut down 0.5 million units of capacity in Italy and move it to China at a one-time cost of 2 million euros. Assume a discount factor of 10 percent over the three years. Do you recommend this option?

Reference no: EM131247359

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Production facilities in italy and china

Reference no: EM131247359

Reference no: EM131247359

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