Question
Your sales person has brought you two sale opportunities, and you can only pick one to work on. Which opportunity do you take, how much
Your sales person has brought you two sale opportunities, and you can only pick one to work on. Which opportunity do you take, how much will you need to borrow, and why did you choose that opportunity?
Background: You have no cash and will need to borrow money on your line of credit. Line of credit is at 8% annually. FX forward contracts are 1% of value for total value of the sales contract, LC Discount Rates will be 3% of value. ARI for open terms are 0.5% for USA, and 1.5% for Mexico. Opportunity #1: Customer is located in the United States. Sale will be for $1M USD, open terms 180 days. It will take you 8 weeks to produce the products for this customer. Costs during Production are 100K per week. Opportunity #2: Customer is located in Mexico. Sale will be for $1,100,000 (as of todays exchange rate), but they buyer wants to pay in Mexican Pesos. The buyer will post a $200,000 Letter of Credit, and wants the balance to be on open terms, Net 30. It will take you 2 weeks to produce the products and it will cost you $50K per week.
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