MINICASE - S&S Air Goes International

Mark Sexton and Todd Story, the owners of S&S Air, have been in discussions with a light aircraft dealer in Monaco about selling the company's planes in Europe. Jarek Jacho-wicz, the dealer, wants to add S&S Air to his current retail line. Jarek has told Mark and Todd that he feels the retail sales will be approximately 5.7 million per month. All sales will be made in euros, and Jarek will retain 5 percent of retail sales as a commission, which will be paid in euros. Because the planes will be customized to order, the f rst sales will take place in one month. Jarek will pay S&S Air for the order 90 days after it is filled. This payment schedule will continue for the length of the contract between the two companies.

Mark and Todd are confident the company can handle the extra volume with its existing facilities, but they are unsure about the potential financial risks of selling their planes in Europe. In their discussion with Jarek, they found that the current exchange rate is $1.09/. At the current exchange rate, the company would spend 80 percent of the sales on production costs. This number does not reflect the sales commission paid to Jarek.Mark and Todd have decided to ask Chris Guthrie, the company's financial analyst, to analys of the proposed international sales. Specifically, they ask Chris to answer the following questions.

1. Briefly, summarize the key facts of the case and identify the problem. State and explain the decision that needs to be made.
2. What are some approaches that can be used to solve this problem? What are some criteria or metrics that can be used to help make this decision?
3. State your recommendation supported by rationale.
4. State the limitations of the approach you used in making this decision, and outline what further analysis you would recommend.