A set of industrial machineries canbe built in USA, Germany, England, or Japan and shipped toCountry-W in Latin America for integration in an oil refinery.Quotes are received from contractors and convert to the U.S. dollarfor estimation. You may use current spot exchange rates from theweb link: <http://www.ozforex.com.au/exchange-rate>) or usethe rates below.
According to the contract, payment istransacted between the two parties on the day the industrialmachineries reach the port of entry of Country W. Theexchange rate for the scheduled arrival is, however, different fromthat listed by the table and is shown as a relative change to thetable.
The U.S. estimate for the industrialmachineries fabrication cost is $350 million. Transport from US toCountry W is $115,000. Assume order was place one yearearlier.
Germany
(Euro)
England
(UK £)
Japan
(Jap. Yen)
Ratio of subcontract bid to USA estimate
0.993
1.007
1.005
Ratio of Transportation cost to USA estimate (transport toCountry W, from country â -â)
1.03
1.07
1.26
Exchange rate on arrival (I USD =)
0.74
0.61
102.32
Inflation
0.85%
2.0%
01.613%
7.a) In which country should themachines be built, what is that cost in USA currency?
7.b) Who is the next-lowestcountry? What are dollar differences?
7.c) What other non-numericaljudgment enter the decision process (such as quality)?
Hints
Country
Quote in
U.S. $
(i)
Transportation
cost
(ii)
Exchange rate /Inflation
(iii)
Expected Cost at
Arrival in U.S. $
(i) +(ii) + (iii)
USA
$350 m
115,000
1.0085
Germany
$350 m à 0.993=X
115,000Ã0.993=Y
1.0085(X+Y)
___________
England
$350 m à 1.007
___________
Japan
$350 m Ã1.005
___________
Hint Inflation cost will be calculated bymultiplying the inflation rate by on sum of cost of product (e.g.,X for Germany) and transportation cost (e.g., Y for Germany)
Continues at the next page >>>>
Quote for Germany = 350* 0.993=$ 347.55
Transportation cost for Germany = 115,000*0.993=$ 114195
Total cost (347,550,000+ 118,450 )*1.0085= $350,401,761
The total cost for Germany is $ 350,401,761. You need todo the same things for other countries and finally pick the countrywith the lowest cost.
A set of industrial machineries canbe built in USA, Germany, England, or Japan and shipped toCountry-W in Latin America for integration in an oil refinery.Quotes are received from contractors and convert to the U.S. dollarfor estimation. You may use current spot exchange rates from theweb link: <http://www.ozforex.com.au/exchange-rate>) or usethe rates below.
According to the contract, payment istransacted between the two parties on the day the industrialmachineries reach the port of entry of Country W. Theexchange rate for the scheduled arrival is, however, different fromthat listed by the table and is shown as a relative change to thetable.
The U.S. estimate for the industrialmachineries fabrication cost is $350 million. Transport from US toCountry W is $115,000. Assume order was place one yearearlier.
| Germany (Euro) | England (UK £) | Japan (Jap. Yen) | |
Ratio of subcontract bid to USA estimate | 0.993 | 1.007 | 1.005 |
Ratio of Transportation cost to USA estimate (transport toCountry W, from country â -â) | 1.03 | 1.07 | 1.26 |
Exchange rate on arrival (I USD =) | 0.74 | 0.61 | 102.32 |
Inflation | 0.85% | 2.0% | 01.613% |
7.a) In which country should themachines be built, what is that cost in USA currency?
7.b) Who is the next-lowestcountry? What are dollar differences?
7.c) What other non-numericaljudgment enter the decision process (such as quality)?
Hints
Country | Quote in U.S. $ (i) | Transportation cost (ii) | Exchange rate /Inflation (iii) | Expected Cost at Arrival in U.S. $ (i) +(ii) + (iii) |
USA | $350 m | 115,000 | 1.0085 | |
Germany | $350 m à 0.993=X | 115,000Ã0.993=Y | 1.0085(X+Y) | ___________ |
England | $350 m à 1.007 | ___________ | ||
Japan | $350 m Ã1.005 | ___________ |
Hint Inflation cost will be calculated bymultiplying the inflation rate by on sum of cost of product (e.g.,X for Germany) and transportation cost (e.g., Y for Germany)
Continues at the next page >>>>
Quote for Germany = 350* 0.993=$ 347.55
Transportation cost for Germany = 115,000*0.993=$ 114195
Total cost (347,550,000+ 118,450 )*1.0085= $350,401,761
The total cost for Germany is $ 350,401,761. You need todo the same things for other countries and finally pick the countrywith the lowest cost.
