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4. Lear Corporation, headquartered in Southfield, Michigan, is one of the largest suppliers for the automotive industry, making products in five major interior systems: seat;
4. Lear Corporation, headquartered in Southfield, Michigan, is one of the largest suppliers for the automotive industry, making products in five major interior systems: seat; instrument panel/cockpit, door and trim, overhead and flooring, and acoustics. Lear plans to make a significant capital investment in one Pacific-Asian country. It will build a subsidiary in that country to supply that country's customers. Construction would begin and end in 2019; production and sales would begin in 2020 and continue indefinitely. Lear can locate the subsidiary in Australia, Malaysia, or Thailand and has collected the following information about these countries' exchange rates based on absolute purchasing power parity and information from its bankers. Assist the firm in choosing the country by first completing the table below and showing your answers to 4 decimal places: S-APPP US$ per Other S-Bank US$ per Other % Overvaluation Real Exchange Rate US$ per Other Australia 2019* 2020* 2021* M 0.7800 0.7900 0.8000 0.7800 0.7900 0.8000 0 1 Malaysia 2019* 1.04 0.2400 0.2600 0.2800 2020* 2021* 0.2500de4.2% 0.2500 -3.8% 0.2500 -10.7% 0.96 0.89 Thailand -33.3% 2019* 2020* 2021* 0.0200 0.0400 0.67 0.0300 0.0300 0.0300 33.3% 1.33 0.0500 66.7% 1.67 *Forecasted Now, assuming all else is equal (considerations of transportation costs, taxes, etc. are identical), in which country is it optimal for Lear to invest? Why? Thailand. Lowest cost on construction; currency is undervalued in 2019. When sales start in 2020 and thereafter, the currency is overvalued and appreciating in real terms
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