Question 3: A firm must decide whether to make a component part in-house or to contract it

out to an independent supplier. Manufacturing the part requires a non-recoverable investment

in specialised assets. The most efficient suppliers are located in countries with currencies that

might be expected to appreciate substantially over the next decade, as these economies

strengthen. Identify the advantages and disadvantages of:

(a) manufacturing the component in-house, and

(b) outsourcing manufacturing to an independent supplier.

Choose an option that you would recommend and give reasons.