Multinational restructuring by the Sports Exports Company

The Sports Exports Company has been successful in producing footballs in Australia and exporting them to the United Kingdom. Recently, Jim Logan (owner of the Sports Exports Company) has considered restructuring his company by expanding throughout Europe. He

plans to export Australian Rules footballs and other sporting goods that were not already popular in Europe to one large sporting goods distributor in Germany; the goods will then be distributed to any retail sporting goods stores throughout Europe that are willing to purchase these goods. This distributor will make payments in euros to the Sports Exports Company.

a. Are there any reasons why the business that has been so successful in the United Kingdom might not be successful in other European countries?

b. If the business is diversified throughout Europe, will this substantially reduce the exposure of the Sports Exports Company to exchange rate risk?

c. Now that several countries in Europe participate in a single currency system, will this affect the performance of new expansion throughout Europe?

Multinational capital budgeting by the Sports Exports Company

Jim Logan, owner of the Sports Exports Company, has been pleased with his success in the United Kingdom. He began his business by producing footballs and exporting them to the United Kingdom. While Australian-style football is still not nearly as popular in the United Kingdom as it is in Australia, his company controls the market in the United Kingdom. Logan is considering an application of the same business in Mexico. He would produce the footballs in Australia and export them to a distributor of sporting goods in Mexico, who would sell the footballs to retail stores. The distributor likely would want to pay for the product each month in Mexican peso. Logan would need to hire one full-time employee in Australia to produce the footballs. He would also need to lease one warehouse.

a. Describe the capital budgeting steps that would be necessary to determine whether this proposed project is feasible, as related to this specific situation.

b. Explain why there is uncertainty surrounding the cash flows of this project.

c. When Logan is considering the implementation of his project in one of several possible countries, what type of tax characteristics should be assessed among the countries?