However, only six months later the deal is not viable as can be seen in the table below: Exchange rate Original currency 6 months later Sterling equivalent 1,000,000 1.214 823,723 Sales Cost of sales Equipment Labour 1.4896 $800,000 300,000 537,057 300,000 Profit/(Loss) (1.6%) (13,334) We have two questions for this case. For each of them, even if you choose only one wrong answer, all the marks of the question will be deducted. Identify a strategy for each of the equipment and labour cost elements of the transaction that will mitigate the risk of loss. Equipment Installations Ltd., (EIL) are a UK-based company who install robotic production line equipment for specialist industries. Strategically, the company sources from ROBOCO Inc. in the United States. Deliveries from the US can take from 6 to 12 weeks depending upon available production capacity. EIL quote a 26-week lead time to include for the variable supply costs and to cover installation. ElL are never late on commissioning the equipment; 40% of the sales are to EURO zone countries who insist on Euro pricing. A typical installation selling for 1m would include $800,000 of equipment and 300,000 labour. With exchange rates of $1.6638/ and 1.1025/ the economics are as follows: Exchange rate Original currency originally 1,000,000 1.1025 Sterling equivalent Sales 907,029 Cost of sales Equipment Labour $800,000 1.6638 480,827 300,000 300,000 Profit/(Loss) 13.9% 126,202 Select one or more: I a. If customers are not prepared to accept this financial risk, quote fixed price assuming 'high' variance in exchange rate. b. Advise customers of $ value and link to current value I c. Link labour cost to currency relationship between and at any time O d. Consider a one-year fixed price with ROBOCO Inc. for equipment I e. Pass risk to customer for variances in movement against $ What financial factors would you need to take into account in implementing these strategies? Select one or more: a. Willingness of EIL to disclose cost breakdown when quoting currency linkage I b. Willingness of EIL customers to accept currency movement risks I c. Ability of EIL to accept some currency risk d. Strength and movement of $ to I e. Strength and movement of to However, only six months later the deal is not viable as can be seen in the table below: Exchange rate Original currency 6 months later Sterling equivalent 1,000,000 1.214 823,723 Sales Cost of sales Equipment Labour 1.4896 $800,000 300,000 537,057 300,000 Profit/(Loss) (1.6%) (13,334) We have two questions for this case. For each of them, even if you choose only one wrong answer, all the marks of the question will be deducted. Identify a strategy for each of the equipment and labour cost elements of the transaction that will mitigate the risk of loss. Equipment Installations Ltd., (EIL) are a UK-based company who install robotic production line equipment for specialist industries. Strategically, the company sources from ROBOCO Inc. in the United States. Deliveries from the US can take from 6 to 12 weeks depending upon available production capacity. EIL quote a 26-week lead time to include for the variable supply costs and to cover installation. ElL are never late on commissioning the equipment; 40% of the sales are to EURO zone countries who insist on Euro pricing. A typical installation selling for 1m would include $800,000 of equipment and 300,000 labour. With exchange rates of $1.6638/ and 1.1025/ the economics are as follows: Exchange rate Original currency originally 1,000,000 1.1025 Sterling equivalent Sales 907,029 Cost of sales Equipment Labour $800,000 1.6638 480,827 300,000 300,000 Profit/(Loss) 13.9% 126,202 Select one or more: I a. If customers are not prepared to accept this financial risk, quote fixed price assuming 'high' variance in exchange rate. b. Advise customers of $ value and link to current value I c. Link labour cost to currency relationship between and at any time O d. Consider a one-year fixed price with ROBOCO Inc. for equipment I e. Pass risk to customer for variances in movement against $ What financial factors would you need to take into account in implementing these strategies? Select one or more: a. Willingness of EIL to disclose cost breakdown when quoting currency linkage I b. Willingness of EIL customers to accept currency movement risks I c. Ability of EIL to accept some currency risk d. Strength and movement of $ to I e. Strength and movement of to
