1. Using a spreadsheet, determine the NPV of the acquisition of Skates’n’Stuff. Based on your numerical analysis, should Blades establish a subsidiary in Thailand or acquire Skates’n’Stuff?
In Excel (have attached), the acquisition NPV is $4,121,929.95, and establishing a new subsidiary NPV is $8,746,688. Other point is Blades acquires the company, it could begin sales immediately and would not require an additional year to build the plant in Thailand, so the action can save cost. Thus, the establishment of a new subsidiary in Thailand would be more profitable by $8,746,688 - $4,121,929.95 =4,624,758.05
2. If Blades negotiates with Skates’n’Stuff, what is the maximum amount (in Thai baht) Blades should be willing to pay?
Blades should be willing to pay the price is the acquisition of Skates’n’ stuff NPV. NPV is the difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project. NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will yield. If Blades, Inc. were to negotiate with Skates’n’Stuff, it should attempt to pay a price that would render the acquisition of Skates’n’Stuff more attractive than the establishment of a subsidiary. Since the difference in NPVs between the two options is 4,624,758.05. Blades, Inc. should attempt to reduce the purchase price by 4,624,758.05/$0.023 = 201,076,437.07 Thai baht. Consequently, it should offer a maximum of THB 1,000,000,000 – THB 201,076,437.07 = THB 798,923,562.93 for Skates’n’Stuff.
3. Are there any other factors Blades should consider in making its decision? In your answer, you should consider the price Skates’n’Stuff is asking relative to your analysis in question 1, other potential businesses for sale in Thailand, the source of the information your analysis is based on, the production process that will be employed by the...
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