FINA 4361 Multinational Financial Management Assignment Summer 2020 Oman Batteries SAOG This is a group assignment. A group can consist of one, two or three students. Oman Batteries SAOG, a fast growing company is planning to expand its operations by selling its car batteries in Africa. The current price of its fastest selling car battery is 25 Rials and it plans to sell the product initially in Egypt. Expected sales in Egypt in the first five years are as follows: 50,000 units in the first year, increasing by 15 % each year in year two and three, and 10% each year in year four and five. An important input in production of batteries is a metal which is produced in abundance in Africa and which the company is currently importing through suppliers in Egypt. Oman Batteries has estimated that for every battery it requires 400 EGP (Egyptian Pounds) worth of lead The company is considering two alternate prosluction plans: Production Plan 1: Establish a new factory in Egypt at an estimate cost of 45 million EGP. The capacity of the plant would be sufficient to meet the demand for batteries in the next five years. If the production plant is in Egypt the following data will apply In EGP Sale price Input cost of metal (4 kilo *96 EGP per kilo) Production and other expenses EBIT 316 1000 384 300 Oman Batteries expects that at the end of five years it can sell the factory at 25% of its current estimated cost. Assume no taxes and no inflation. Production Plan 2: Establish a new factory in Oman to meet the Egyptian demand at an estimated cost of 1 million Rials. The export price per battery would be 25 Rials per battery. Oman Batteries expects that at the end of five years it can sell the factory at 25% of its current estimated cost. If the production plant is in Oman the following data will apply. Assume no taxes and no inflation. In OMR 25 9.5 Export price Import cost of metal (4 kilo *96 EGP per kilo current exchange rate) Production and expenses EBIT 8 7.5 Financing Given its current debt equity ratio, Oman Batteries feels that it can easily get a loan for the full amount required for the new factory. For the purpose of financing the new factory, Oman batteries has two choices: 1. Omani Rial loan for 5 years a fixed rate of 10% per annum 2. Loan for 5 years from Euro Credit market in pound sterling (GBP) on a floating rate basis. Assume that interest is paid on an annual basis and interest rates can move in the following manner year by year go up - 9%, 10%, 11%, 12%, 13% or go down - 7%, 6%, 5%, 4.5%, 4% The finance manager of Oman Batteries is also worried that the Egyptian pound can vary in the range of plus 25% to minus 25% in the coming five years. Search for the current exchange rate and make a reasonable assumption about how EGP will behave in next five years Similarly GBP exchange rate can vary in the range of plus 25% to minus 25% in the coming five years. Search for the current exchange rate and make a reasonable assumption about how GBP will behave in next five years Assume no taxes and no inflation. Required: What are the alternate scenarios in front of the company's management. Minimum four scenarios. Calculate the impact on annual profits (in OMR) of the new proposal under each scenario ( You may make additional assumptions if necessary, but these should be clearly stated) Recommend your choice: Should the company establish the production plant in Egypt or in Oman. Give reasons and explain. Submit your scenarios, calculations, choice, reasons and recommendation in the form of a project report . . Note: You have a choice of using a calculator or Excel to do the underlying calculations" You can additionally calculate NPV of each proposal if you wish. If you are using Excel, you can try using Data Table or Scenario Manager to generate the scenarios and related calculations. If anyone is interested in using either a Data Table or Scenario Manager, I can upload a video on how to use these Excel modules. FINA 4361 Multinational Financial Management Assignment Summer 2020 Oman Batteries SAOG This is a group assignment. A group can consist of one, two or three students. Oman Batteries SAOG, a fast growing company is planning to expand its operations by selling its car batteries in Africa. The current price of its fastest selling car battery is 25 Rials and it plans to sell the product initially in Egypt. Expected sales in Egypt in the first five years are as follows: 50,000 units in the first year, increasing by 15 % each year in year two and three, and 10% each year in year four and five. An important input in production of batteries is a metal which is produced in abundance in Africa and which the company is currently importing through suppliers in Egypt. Oman Batteries has estimated that for every battery it requires 400 EGP (Egyptian Pounds ) worth of lead. The company is considering two alternate production plans: Production Plan 1: Establish a new factory in Egypt at an estimate cost of 45 million EGP. The capacity of the plant would be sufficient to meet the demand for batteries in the next five years. If the production plant is in Egypt the following data will apply In EGP Sale price 1000 Input cost of metal (4 kilo *96 EGP per kilo) Production and other expenses EBIT 316 384 300 Oman Batteries expects that at the end of five years it can sell the factory at 25% of its current estimated cost. Assume no taxes and no inflation. Production Plan 2: Establish a new factory in Oman to meet the Egyptian demand at an estimated cost of 1 million Rials. The export price per battery would be 25 Rials per battery. Oman Batteries expects that at the end of five years it can sell the factory at 25% of its current estimated cost. If the production plant is in Oman the following data will apply. Assume no taxes and no inflation. In OMR 25 9.5 Export price Import cost of metal (4 kilo *96 EGP per kilo * current exchange rate) Production and expenses EBIT 8 7.5 FINA 4361 Multinational Financial Management Assignment Summer 2020 Oman Batteries SAOG This is a group assignment. A group can consist of one, two or three students. Oman Batteries SAOG, a fast growing company is planning to expand its operations by selling its car batteries in Africa. The current price of its fastest selling car battery is 25 Rials and it plans to sell the product initially in Egypt. Expected sales in Egypt in the first five years are as follows: 50,000 units in the first year, increasing by 15 % each year in year two and three, and 10% each year in year four and five. An important input in production of batteries is a metal which is produced in abundance in Africa and which the company is currently importing through suppliers in Egypt. Oman Batteries has estimated that for every battery it requires 400 EGP (Egyptian Pounds) worth of lead The company is considering two alternate prosluction plans: Production Plan 1: Establish a new factory in Egypt at an estimate cost of 45 million EGP. The capacity of the plant would be sufficient to meet the demand for batteries in the next five years. If the production plant is in Egypt the following data will apply In EGP Sale price Input cost of metal (4 kilo *96 EGP per kilo) Production and other expenses EBIT 316 1000 384 300 Oman Batteries expects that at the end of five years it can sell the factory at 25% of its current estimated cost. Assume no taxes and no inflation. Production Plan 2: Establish a new factory in Oman to meet the Egyptian demand at an estimated cost of 1 million Rials. The export price per battery would be 25 Rials per battery. Oman Batteries expects that at the end of five years it can sell the factory at 25% of its current estimated cost. If the production plant is in Oman the following data will apply. Assume no taxes and no inflation. In OMR 25 9.5 Export price Import cost of metal (4 kilo *96 EGP per kilo current exchange rate) Production and expenses EBIT 8 7.5 Financing Given its current debt equity ratio, Oman Batteries feels that it can easily get a loan for the full amount required for the new factory. For the purpose of financing the new factory, Oman batteries has two choices: 1. Omani Rial loan for 5 years a fixed rate of 10% per annum 2. Loan for 5 years from Euro Credit market in pound sterling (GBP) on a floating rate basis. Assume that interest is paid on an annual basis and interest rates can move in the following manner year by year go up - 9%, 10%, 11%, 12%, 13% or go down - 7%, 6%, 5%, 4.5%, 4% The finance manager of Oman Batteries is also worried that the Egyptian pound can vary in the range of plus 25% to minus 25% in the coming five years. Search for the current exchange rate and make a reasonable assumption about how EGP will behave in next five years Similarly GBP exchange rate can vary in the range of plus 25% to minus 25% in the coming five years. Search for the current exchange rate and make a reasonable assumption about how GBP will behave in next five years Assume no taxes and no inflation. Required: What are the alternate scenarios in front of the company's management. Minimum four scenarios. Calculate the impact on annual profits (in OMR) of the new proposal under each scenario ( You may make additional assumptions if necessary, but these should be clearly stated) Recommend your choice: Should the company establish the production plant in Egypt or in Oman. Give reasons and explain. Submit your scenarios, calculations, choice, reasons and recommendation in the form of a project report . . Note: You have a choice of using a calculator or Excel to do the underlying calculations" You can additionally calculate NPV of each proposal if you wish. If you are using Excel, you can try using Data Table or Scenario Manager to generate the scenarios and related calculations. If anyone is interested in using either a Data Table or Scenario Manager, I can upload a video on how to use these Excel modules. FINA 4361 Multinational Financial Management Assignment Summer 2020 Oman Batteries SAOG This is a group assignment. A group can consist of one, two or three students. Oman Batteries SAOG, a fast growing company is planning to expand its operations by selling its car batteries in Africa. The current price of its fastest selling car battery is 25 Rials and it plans to sell the product initially in Egypt. Expected sales in Egypt in the first five years are as follows: 50,000 units in the first year, increasing by 15 % each year in year two and three, and 10% each year in year four and five. An important input in production of batteries is a metal which is produced in abundance in Africa and which the company is currently importing through suppliers in Egypt. Oman Batteries has estimated that for every battery it requires 400 EGP (Egyptian Pounds ) worth of lead. The company is considering two alternate production plans: Production Plan 1: Establish a new factory in Egypt at an estimate cost of 45 million EGP. The capacity of the plant would be sufficient to meet the demand for batteries in the next five years. If the production plant is in Egypt the following data will apply In EGP Sale price 1000 Input cost of metal (4 kilo *96 EGP per kilo) Production and other expenses EBIT 316 384 300 Oman Batteries expects that at the end of five years it can sell the factory at 25% of its current estimated cost. Assume no taxes and no inflation. Production Plan 2: Establish a new factory in Oman to meet the Egyptian demand at an estimated cost of 1 million Rials. The export price per battery would be 25 Rials per battery. Oman Batteries expects that at the end of five years it can sell the factory at 25% of its current estimated cost. If the production plant is in Oman the following data will apply. Assume no taxes and no inflation. In OMR 25 9.5 Export price Import cost of metal (4 kilo *96 EGP per kilo * current exchange rate) Production and expenses EBIT 8 7.5