Investing Excessive Funds in Thailand

Added on - 22 Jul 2020

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PART A1. Stating whether there is a trade-off between the higher interest rates in Thailand and thedelayed conversion of baht into Australian dollarsBy doing evaluation, it has identified that as per investment principle focus should beplaced on investing money where interest rates are high and currency appreciation takes place.On the basis of such principle or aspects Aussie Blades Pty Ltd needs to make focus oninvesting excessive funds in Thailand. The rationale behind this, due to the economic instability,interest rates are higher in Thailand. Thus, by investing money in Thailand firm can take benefitsof high interest rate but it has to delay investment for the period of one year. On the other side, ifbusiness unit focuses on investing money in Australia then it will receive money immediately butat lower interest rate.By doing evaluation, it has found that cash flow associated with thedelayed conversion aspect is higher other option available such as immediate change ofAustralian currency into TBH.Hence, by taking into account overall assessment it can beentailed that taking benefits of high interest rates prevail in Thailand and converting TBH intoAUD$ later Aussie Blades can attain trade off and thereby would become to get the desiredlevel of outcome or success.2. Assessing the extent to which Australian operations will be affected if net baht received areinvested in ThailandComputation of net revenue that is available for investment purposeParticularsFigures (In TBH)Figures (In TBH)Sales revenue180000 * 4594826920000Cost of goods sold72000 * 2871206712000Net revenue (Sales – COGS)620208000The above mentioned table shows that Aussie Blade has net revenue of 620208000 TBHafter the deduction of COGS which in turn accounted for 206712000 TBH. Outcome of aboveassessment presentsthat if net revenue generated from Thailand are invested in the similarcountry then company needs to take more loan for continuing or ensuring smooth functioning ofoperations in Australia.Given case clearly presents that company has already taken loan from
Australia @ 10%.In addition to this, given case presents that buying components in Thailandbecomes more expensive as compared to Australia. Considering such aspect, Thailanddepartmental team focuses on importing components from Australia.Thus, operations of thecompany will be affected if investment such asnet revenue of 620208000 TBH is made inThailand over Australia. Moreover, without having enough funds, Australian manufacturingplant, located in Perth WA, would not become able to manufacture Speedos.3. Comparing the choice of investing funds versus using the same to provide needed financingParticularsFiguresFiguresDelayed conversionFuture value: PV (1 + i)n620208000 (1 + 0.15)1= TBH 713239200Conversion of TBH intoAUD $TBH 713239200 * .0361= $25747935.12Immediate conversionConversion of TBH intoAUD $TBH 620208000 * 0.0381= $23629924.8Future value = PV (1 + i)nFV = 23629924.8 (1 + .08)After 1 year future value:$25520318.78Conclusion: It can be concluded from the cash flow evaluation that business entityshould lay focus on the aspects of delayed conversion. Moreover, in the delayed conversionoption or strategy company will get high cash flows such as $25747935.12 respectively.4. Giving recommendation about the plan if Thai baht will depreciate by at least 7 per cent in oneyearParticularsFiguresFiguresDelayed conversionFuture value: PV (1 + i)n620208000 (1 + 0.08)1= TBH 669824640Conversion of TBH intoAUD $TBH 713239200 * .0361= $24180669.5Immediate conversionConversion of TBH into
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