Question
How do I calculate ROI and Risk based on this scenario: Birdies is a local producer of stereos that enjoys a monopoly position in country
How do I calculate ROI and Risk based on this scenario:
Birdiesis a local producer of stereos that enjoys a monopoly position in country A. Country A is characterised by low income and cheap labour costs, with the performance of its economy relying heavily on the global price of commodities since the country is a major exporter of oil. The central bank of country A has been keeping interest rates at a high level (10%) as a way of curbing inflation (i.e. 5% last year), with no changes of monetary policy being expected in the short-term. By way of acquiring Birdies and moving its assembly line to country A,BigSwould have access to a market that has yielded an average annual ROI of 9% in the last five years, at a relatively low risk (i.e. 6% standard deviation). Moreover, through a reduction in its operation costs,BigS' ROI is estimated to increase by 7%. Since they are in the same industry, the correlation of Birdies' business to that ofBigSis roughly 70%.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started