Professional Documents
Culture Documents
Case
Sirisha Prasanna
Purba Mukherjee
Smita Wardhan
Soumya Sucharita Mahapatra
Suchanda Som
Case Facts
US based roller blade manufacturer
Period of operation- 10 years
Speedos
NPV= $8 mn @ 25% (conservative approach)
Total risk= Unsystematic + Systematic
IR (Thai)=15%, IR (US)= 8%
Rf= 5%, Rm=12%
Cost of D and E higher in Thailand
Case background
South East Asian Financial Crisis- 1997-98
Recovery
Tourist-
1. High growth potential
2. Lack of competitors
Volatile Bhat (Thiland Currency )
Systematic Risk – equity risk ,interest rate risk ,
commodity risk.
Unsystematic Risk-country risk(mutual fund ,shares
,debenture) , exchange rate risk
Q1- If Blades expands into Thailand…
EXCESS RETURN
ON MARKET PORTFOLIO
Q3- Raising debt in Thailand…
Option for Debt Financing- borrow dollar US market and
convert it into bhatt or borrow bhatt from Thai market.
Interest rate higher in Thailand than that in US
International Fisher effect is applicable
Higher cost of debt but will depriciate over the year
offseated by the reduce exposure to adverse exchange rate
effect.(10 year project and high political and currency risk)
Q4- Use of debt…
Advantages-
Advantages-
1.
1. High
High country
country risk-
risk- possibility
possibility for
for hedging
hedging
2.
2. Future
Future depreciation->increase
depreciation->increase profit
profit of
of company
company
Disadvantage-
Disadvantage-
1.
1. Increase
Increase in
in cost
cost of
of capital
capital
Financing with Baht when it is weak
Year 1 Year 2 Year 3