536P[1] - FIN 536, 11S Fin 536 International Corporate...

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FIN 536, 11S FIN 536 - SU 1 Fin 536 International Corporate Finance Project: Operating Exposure Analysis Name: ______________________________ Due date: April 19, 2011 XXX, Inc. is an U.S.-based MNE located in Phoenix, Arizona. XXX has a 100%-owned manufacturing subsidiary in Germany. Currently (T = 0), XXX Germany has an annual sale volume of 1,200,000 units. It sells 500,000 units within Europe and exports the rest of its products to Non-European countries. All the sales are invoiced in €s. The company’s products are manufactured in Germany with local materials. It is believed that XXX Germany can increase or decrease production volume without any significant changes in costs. The income tax is 30% for XXX Germany. The average collection period is 90 days and inventory is equal to 30% of the direct cost of goods sold. Assume no additional capital expenditure is required and no terminal value exists. In this project, you are required to analyze the issue of operating exposure and evaluate the project’s NPV corresponding to the changes in real exchange rate. The following information is available. Conduct your analysis using the worksheet templates in 536-5a.xls.
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536P[1] - FIN 536, 11S Fin 536 International Corporate...

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