MBAIBF111006 - MBA International Business and Finance Assignment

Assignment Task

Required Calculate the following values for Product 

1)  The total cost of the current ordering policy

(ii) The total cost of an ordering policy using the economic order quantity and the net cost or saving of introducing an ordering policy using this economic order quantity

(iii) Explain the concept of EOQ? Will it always be economical for the company to buy at EOQ? Are there exceptions? Explain.

The following information is also relevant

SIA had exactly the same flight schedule in 20X7 as in 20X6, with the overall number of flights and destinations being the same in both years.

In April 20X7, SIA had to renegotiate its licences with five major airports which led to an increase in the prices SIA had to pay for the right to operate flights there. The licences with ten more major airports are due to expire in December 20X7, and SIA is currently in negotiation with these airports.

Required:

a) Calculate the following ratios for the years ended 30 June 20X6 and 20X7: (1) Operating profit margin

• Return on capital employed
• Net asset turnover
• Current ratio
• Interest cover
• Gearing (Debt/Equity).

Note: For calculation purposes, all loan notes should be treated as debt. 

b) Comment on the performance and position of SIA for the year ended 30 June 20X7.

Note: Your answer should highlight any issues which SIA should be considering in the near future. 

 You have been retained by the management of an international group to advise on the management of its foreign exchange exposure. You are required

(a) to explain the main types of foreign exchange exposure,

(b) to advise on policies which the corporate treasurer could consider to provide valid and relevant methods of reducing exposure to foreign exchange risk. 

(c) Discuss briefly four techniques a company might use to hedge against the foreign exchange risk involved in foreign trade.

(d) You have been asked to give advice to the managing director of Hammer Co about a tender by the company's French subsidiary for an order in Kuwait. The tender conditions state that payment will be made in Kuwaiti Dinars 1 year from now. The subsidiary is unsure as to what price to tender. The marginal cost of producing the goods at that time is estimated to be Euro 290,000 and a 30% margin is normal for the company. Exchange rates Euro/Dinar Spot €0.273 = 1 Dinar No forward rate exists between the Euro and the Dinar. Euro Kuwait Annual inflation rates 3% 7%

Required

(1) market capitalisation (equity market value); (ii) net asset value basis); and 

(a) price/earnings radolidation basint the business sector average price/earningss ratio 

(b) Discuss briefly the advantages and disadvantages of using the dividend growth model to value the shares of ABC PLC Co. 

Question 6 ZIPLOC Co, whose home currency is the dollar, took out a fixed-interest peso bank loan several years ago when pesome currency is the dollar, took cheap compared to dollar interest rates. Economic difficulties have now increased peso interest rates while dollar interest rates have remained relatively stable. ZIPLOC Co must pay interest of 5,000,000 pesos in six months' time. The following information is available.

(a) Explain briefly the relationships between:

(i) exchange rates and interest rates

(ii) exchange rates and inflation rates. 

b) Calculate whether a forward market hedge or a money market hedge should be used to hedge the interest payment of 5 million pesos in six months' time. Assume that ZIPLOC Co would need to borrow any cash it uses in hedging exchange rate risk. (10 marks)

c) Plot Co sells Product P with sales occurring evenly throughout the year.

Product P

The annual demand for Product P is 300,000 units and an order for new inventory is placed each month. Each order costs $267 to place. The cost of holding Product P in inventory is 10 cents per unit per year. Buffer inventory equal to 40% of one month's sales is maintained.

Other information

Plot Co finances working capital with short-term finance costing 5% per year. Assume that there are 365 days in each year.

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