Ask Question, Ask an Expert


Ask Basic Finance Expert

Dorchester, Ltd.

Dorchester, Ltd. Is an old-line confectioner specializing in high-quality chocolates.  Through it facilities in the United Kingdom, Dorchester manufactures candies that it sells throughout Western Europe and North American (United States and Canada).  With its current manufacturing facilities, Dorchester has been unable to supply the U.S. market with more than 225,000 pounds of candy per year.  This supply has allowed its sales affiliate, located in Boston, MA to be able to penetrate the U.S. market no father west than St. Louis, MO and only as far south as Atlanta, GA.  Dorchester believes that a separate manufacturing facility located in the U.S. would allow it to supply the entire U.S. market and Canada (which presently accounts for 65,000 pounds per year).  Dorchester currently estimates initial demand in the North American market at 390,000 pounds, with growth at a 5% annual rate.  A separate manufacturing facility would, obviously free up the amount currently shipped to the U.S. and Canada.  However, Dorchester believes that this is only a short-run problem.  They believe the economic development-taking place in Eastern Europe will allow it to sell there the full amount presently shipped to North America within a period of five years.

Dorchester presently realizes £3.00 per pound on its North American exports.  Once the U.S. manufacturing facility is operating, Dorchester expects that it will be able to initially price its product at $7.70 per pound.  This price would represent an operating profit of $4.40 per pound.  Both sales price and operating costs are expected to keep track with the U.S. price level; U.S. inflation is forecast at a rate of 3% for the next several years.  In the U.K. long-run inflation is expected to be in the 4 to 5% range, depending on which economic service one follows.  The current spot exchange rate is $1.50/£1.00.  Dorchester explicitly believes in PPP as the best means to forecast future exchange rates.

The manufacturing facility is expected to cost $7,000,000.  Dorchester plans to finance this amount by a combination of equity capital and debt.  The facility will increase Dorchester's borrowing capacity by £2,000,000, and it plans to borrow only that amount.  The local community in which Dorchester has decided to build will provide $1,500,000 of debt financing for a period of seven years at 7.75%.  The principal is to be repaid in equal installments over the life of the loan.  At this point, Dorchester is uncertain whether to raise the remaining debt it desires through a domestic bond issue or a Eurodollar bond issue.  It believes it can borrow pounds sterling at 10.75% per annum and dollars at 9.5%.  Dorchester estimates its all-equity cost of capital to be 15%.
The U.S. Internal Revenue Service (IRS) will allow Dorchester to depreciate the new facility over a seven-year period.  After that time the confectionery equipment, which accounts for the bulk of the investments, is expected to have substantial market value.

Dorchester does not expect to receive any special tax concessions.  Further, because the corporate tax rates in the two countries are the same – 35% in the U.K and the U.S.) transfer pricing strategies are ruled out.

(1) Carefully select the three countries you will chose to analyze.

(2) Research three potential takeover targets that are based in three different countries and have substantial operations overseas.

(3) Provide a three to five page  economic assessment to Dorchester, Inc. management regarding the pros and cons of buying a company that is based in each of the three countries. Use non-course materials to support your contentions and supporting documentation as necessary.

(4) In addition to the requirements above, your paper:

• Must be double-spaced and Time Roman 12 point font

• Must be formatted according to 6th edition APA style

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91749

Have any Question? 

Related Questions in Basic Finance

Rtio analysisextraordinary items and ratio analysis

Ratio Analysis "Extraordinary Items and Ratio Analysis" Please respond to the following: • Choose at least two items or events that you would consider to be extraordinary to a company. Propose the manner in which you wou ...

Suppose a us wood-products company has facilities and

Suppose a U.S. wood-products company has facilities and employees in Canada providing its raw materials (wood), but has most of its sales in the United States. (1) What are the most important operational and financial ri ...

Comment on this statement people care about real interest

Comment on this statement: "People care about real interest rates, not nominal rates. Therefore, money demand should depend on the difference between the real rates on money and bonds, not the nominal rate on bonds."

What are the advantages of fixed exchange rateswhat are the

What are the advantages of fixed exchange rates? What are the disadvantages? Does it matter if the country is large or small?

At dolon general hospital 30 percent of the patients have

At Dolon General Hospital, 30 percent of the patients have Medicare insurance (M) while 70 percent do not have Medicare insurance (M´). Twenty percent of the Medicare patients arrive by ambulance, compared with 10 percen ...

To test an herbal treatment for acid reflux disease 100

To test an herbal treatment for acid reflux disease, 100 volunteers who suffered from mild indigestion were randomly divided into two groups. Each person was given a month's supply of tea bags. For one group, the tea con ...

Assignment discussion questionvaluation of a firms

Assignment: Discussion Question Valuation of a firm's financial assets is said to be based on what is expected in the future, in terms of the future performance of the firm, the industry, and the economy. What types of v ...

You are planning to save for retirement over the next 24

You are planning to save for retirement over the next 24 years. To do this, you will invest $638 per month in a stock account and $228 per month in a bond account. The return of the stock account is expected to be 9 %, a ...

Problem 1you just inherited some money and a broker offers

Problem 1 You just inherited some money, and a broker offers to sell you an annuity that pays $5,000 at the end of each year for 20 years. You could earn 5% on your money in other investments with equal risk. What is the ...

The sarbanes-oxley act of 2002 sox was passed as the result

The Sarbanes-Oxley Act of 2002 (SOX) was passed as the result of the Enron scandal and other instances of accounting fraud. This act was passed to strengthen the role of the Securities and Exchange Commission (SEC). Rese ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate