Farrah Malik. Silvia Hernandez.

Zarah Hayat
Problem1 year 0 1 2 3 4 5 6 7 CF $ (756,000.00) $ 103,000.00 $ 153,000.00 $ 215,000.00 $ 215,000.00 $ 215,000.00 $ 145,000.00 $ 360,000.00

npv=

$1,003,005.09 $ (756,000.00)

$247,005.09

IR = 16% R

Problem2 year 0 1 2 3 4 5 6 7 npv= $287,054.31 IR = 53% R $ $ $ $ $ $ $ $ CF (54,000.00) (13,000.00) 23,000.00 69,000.00 69,000.00 69,000.00 69,000.00 143,000.00 -54000

$233,054.31

Question 3 Despite Sweden's insistence that the figures presented to Belgium were of their custom engineering approach they would help Belgium oversee and train workers for the product, Belgium felt that Sweden was too optimistic in their sales forecasting, and Belgium was having a hard time producing the product in their plants. According to Lavanchy and Bol, the proposal leads to 1) high OH costs and greater VC, hence Sweden should buy from Belgium. 2) There is no need to spend skr.700,000 on a new plant when there is excess capacity in Belgium plant which can produce incremental tons at lower cost and lower manufacturing risk.

Farrah Malik. Silvia Hernandez. Zarah Hayat Question 4 Each side wants the bonuses that the company offers so their agenda is based on the benefit to each. One side has no tariffs but they are going above the board. Basically there are many hidden agendas. Question 5 From Questions 1 and 2, we have come up with two crucial financial numbers that can help us side with either Sweden or Belgium. However, there is one more calculation we should make before finalizing our decision. That calculation is the Profitability index. For the Swedish project: 1003005.09/756000.00 gives us a PI of 1.33 For the Belgian proposal: 287054.31/54000.00 gives us a PI of 5.32 In addition to a higher PI, the Belgian proposal has a greater IRR and a positive NPV. Thus, we would choose the Belgian proposal. We should do Belgium for a couple of years and Sweden is the long term answer in case it can reach its full capacity. Question 6 The transfer price should be equal to the variable costs of the goods or services, plus the contribution margin per unit that is lost. =variable costs+(selling price-variable costs) For the Swedish project:
Sweden Sales Price/ton VC/ton # ofTons 2000 1000 200 1850 1000 300 1850 1000 400 1850 1000 400 1850 1000 400 1850 1000 400 1850 1000 400 tota ls 110 30 70 00 20 50

T = $ 1 ,1 0 0 P 3 0 .0 TP per ton $ 5.24

Farrah Malik. Silvia Hernandez. Zarah Hayat

For the Belgian Project:

Belgium SalesPrice/ton VC/ton # ofTons 2000 1380 200 1850 1380 300 1850 1380 400 1850 1380 400 1850 1380 400 1850 1380 400 1850 totals 13100 1380 9660 400 2500

TP= $ 1 ,1 0 0 3 0 .0 Tp per ton $ 5.24

As seen, the transfer price per ton would be 5.24 or a total of 13,100.00. Question 7 The competitive advantages of Roget S.A. are its decentralized managerial style and promotion policy. Their compensation for executives based on profits is also a competitive advantage. All this together helped retain the industries best within the company. The management control systems are designed to support this strategy because subsidiaries were given large amounts of decision power. Also the cases main focus was a new product brought from a subsidiary. Question 8 Gillot needs to develop a process that new proposals should go through. A lot of investment took place into planning this project, that could have been analyzed before by the Belgian side. Also in terms of its employees, Gillot needs to appreciate the effort and understand all the work that has gone into making a solid proposal. Ekstrom mentioned that throughout the case. The biggest conclusion and suggestion we can make is not to mark up to subsidiary offices. The company should invest in its own research and development