Operational Performance: Write a brief analysis of GBATT?s operational performance. Include discussion of the year over year performance. Financial Markets and Funding Choices: Analyze the choices of funding for the new plant. Your analysis should include: Debt Financing Compare currency denomination choices for debt, and if debt is selected for financing suggest whether the debt should be denominated in U.S. dollars or Brazilian reals. Compare centralized and decentralized denomination of debt and its effect on the debt issuance. Determine if a fixed or a floating debt rate should be used. Equity Financing: Examine whether equity should be domestically listed in a single exchange, or cross-listed in multiple exchanges around the world. What are some advantages and disadvantages of each?
Scenario: Your employer, Getting Bigger All The Time, Inc. (GBATT), a multinational corporation headquartered in the United States of America, is looking to expand operations into Brazil. GBATT manufacturers a variety of materials used in the residential and commercial building industries. The Brazilian economy has continued to expand, even in the current global economic downturn, and sales of GBATT materials to Brazilian companies have greatly increased. GBATT is exploring the possibility of building a new manufacturing facility in Brazil, not only to meet the increasing Brazilian demand, but also in anticipation of increased demand in other South American and Latin American countries once the global recession is completely over. The following is GBATT's basic income statement for the last two years of operations. GBATT Income Statement for Years Ending December 31 ($ millions) Year 1 Year 2 Amount % of total sales Amount % of total sales Net Sales $4,500.0 100.0% $4,300.0 100.0% Variable operating costs (78% of sales) (3,510.0) 78.0% (3,354.0) 78.0% Gross profit 990.0 22.0% 946.0 22.0% Fixed operating costs except depreciation (60.0) 1.3% (57.0) 1.3% 930.0 20.7% 889.0 20.7% Earnings before interest, taxes, depreciation , and amortization (EBITDA) Depreciation (33.0) 0.7% (30.0) 0.7% Earnings before interest and taxes (EBIT) 897.0 19.9% 859.0 20.0% Interest (24.0) 0.5% (23.0) 0.5% Earnings before taxes (EBT) 873.0 19.4% 836.0 19.4% Taxes (35%) (305.6) 6.8% (292.6) 6.8% Net income $567.5 12.6% $543.4 12.6% Directions: The CFO has asked you to analyze the information to help the decision makers select among different options. He asked that your analysis include the following topics: 1. Operational Performance: Write a brief analysis of GBATT's operational performance. Include discussion of the year over year performance. 2. Financial Markets and Funding Choices: Analyze the choices of funding for the new plant. Your analysis should include: a. Debt Financing a.i. Compare currency denomination choices for debt, and if debt is selected for financing suggest whether the debt should be denominated in U.S. dollars or Brazilian reals. a.ii. Compare centralized and decentralized denomination of debt and its effect on the debt issuance. a.iii. Determine if a fixed or a floating debt rate should be used. b. Equity Financing: Examine whether equity should be domestically listed in a single exchange, or cross-listed in multiple exchanges around the world. What are some advantages and disadvantages of each
