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Blades Case

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Submitted By kylep3454
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Blades Inc. Case
Answers:

1. 15,691,262.40
2. 16,075,791.36
3. Based on the Cash Flows, Blades should stray away from Holt’s plan as it makes a significant amount less than my plan. The proper way of increasing their cash flows is to convert it instantly and then use the interest rate to produce more. They will not be subject to any depreciation if they convert now.
4. Even if you have a higher interest rate, doesn’t mean you are going to make the more money in cash flows. In this case, if you exchange earlier rather than later you are bound to make more because of less chance of fluctuation in the market with such a high interest rate.
5. 16,373,491.20
6. .02066
7. Part 1: 14,736,142.08
Part 2: 13,839,159.52
This happened because the spot rate had changed, and if you convert the cash flows right away, the spot rate effects it the most from the beginning. The interest rate plays a bigger role with a lesser value in the spot rate.
8. MEMO:
Dear Ben Holt,
The options are tough to decide between, but at the spot rate that we currently have, my way of going about this is the one you should pick. The best way is if we convert our cash flows over the earliest to avoid as much depreciation as we possibly can. Along with this, we should try and convert so the interest rate isn’t as much of an effect if the economy in Thailand declines. The only way I’d say go with your plan is if we believed the spot rate were to decline, which is a very good possibility. But for the most part, if we exchange sooner it allows for a lesser risk for market collapses. Inflation also plays a role in this, and a country with higher inflation brings in more imports. The inflation rate isn’t so much important as the expected spot rate and the forward spot rates. Ultimately I would recommend to go with Option 2 (my part) for the fact that exchanging sooner eliminates

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