As a financial analyst for Blades, Inc., you are reason- ably satisfied with Blades current setup of exporting Speedos (roller blades) to Thailand. Due to the unique arrangement with Blades primary customer in Thailand, forecasting the revenue to be generated there is a relatively easy task. Specifically, your customer has agreed to purchase 180,000 pairs of Speedos annually, for a period of 3 years, at a price of THB4,594 (THB Thai baht) per pair. The current direct quotation of the dollar-baht exchange rate is $0.024.

The cost of goods sold incurred in Thailand (due to imports of the rubber and plastic components from Thailand) runs at approximately THB2,871 per pair of Speedos, but Blades currently only imports materials sufficient to manufacture about 72,000 pairs of Spee- dos. Blades primary reasons for using a Thai supplier are the high quality of the components and the low cost, which has been facilitated by a continuing depre- ciation of the Thai baht against the U.S. dollar. If the dollar cost of buying components becomes more ex- pensive in Thailand than in the United States, Blades is contemplating providing its U.S. supplier with the ad- ditional business.

Your plan is quite simple; Blades is currently us- ing its Thai-denominated revenues to cover the cost of goods sold incurred there. During the last year, excess revenue was converted to U.S. dollars at the prevail- ing exchange rate. Although your cost of goods soldis not fixed contractually as the Thai revenues are, you expect them to remain relatively constant in the near future. Consequently, the baht-denominated cash in-

flows are fairly predictable each year because the Thai customer has committed to the purchase of 180,000 pairs of Speedos at a fixed price. The excess dollar reve- nue resulting from the conversion of baht is used either to support the U.S. production of Speedos if needed or to invest in the United States. Specifically, the revenues are used to cover cost of goods sold in the U.S. manu- facturing plant, located in Omaha, Nebraska.

Ben Holt, Blades CFO, notices that Thailands in- terest rates are approximately 15 percent (versus 8 per- cent in the United States). You interpret the high inter- est rates in Thailand as an indication of the uncertainty resulting from Thailands unstable economy. Holt asks you to assess the feasibility of investing Blades excess funds from Thailand operations in Thailand at an inter- est rate of 15 percent. After you express your opposi- tion to his plan, Holt asks you to detail the reasons in a detailed report.

-Construct a spreadsheet to compare the cash flows resulting from two plans. Under the first plan, net baht-denominated cash flows (received today) will

be invested in Thailand at 15 percent for a one-year period, after which the baht will be converted to dollars. The expected spot rate for the baht in one year is about $.022 (Ben Holts plan). Under the second plan, net baht-denominated cash flows are converted to dollars immediately and invested in the United States for one year at 8 percent. For this question, assume that all baht-denominated cash flows are due today. Does Holts plan seem supe- rior in terms of dollar cash flows available after one year? Compare the choice of investing the funds versus using the funds to provide needed financing to the firm.