Part 1- Approximately 2 pages.
Find at least two scholarly articles that provide examples of how firms have used International Letters of Credit.
Explain how International Letters of Credit were established.
Analyze how International Letters of Credit facilitated international trade for the firms.
Describe any pitfalls the firms encountered and how the problems were resolved.
Based on what you have determined about GBATT to date and what you learned from your readings and research, what cautionary advice would you offer the CFO about the use of international letters of credit?
Part 2 - Approximately 2 pages
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.
Scenario:
Your employer, GBATT, 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.
GBATT's 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.
After completing the risk analysis, use the information from the chart above to complete the following:
Calculate GBATT's WACC.
Using the WACC and the above cash flows, calculate the NPV of each project.
Justify the importance of knowing a company's WACC and NPV.
Recommend the facility to build based on the NPV.
Use current exchange rates to convert the NPV's to the Brazil real.
Note: Exchange rates can be found at Yahoo Finance and other Internet sites.