1. Trade off is a situation that involves losing one quality or aspect of something in return for gaining another quality or aspect. so it’s mean that if the net baht-denominated cash flows converted to pounds today, they will not be concerned about any future depreciation of the baht that would result in less pound cash flows.
If the cash ...view middle of the document...
For example, if the baht depreciated by 10% over the next year the Thai investment will render a yield of roughly 5 percent, while the company pays 10% interest on funds borrowed in the UK Since the funds could have been converted into pounds immediately and used in the UK, the baht should probably be converted into pounds today to secure the company from the additional or expected interest expenses that would be incurred from this action.
First plan 15% Second plan 8%
the cost of goods for 72000 pairs ฿206,712,000 ฿206,712,000
the selling price for 180000 pairs ฿826,920,000 ฿826,920,000
exchange rate £0.0147 £0.016
Net baht-denominated CF ฿620,208,000
in pound - £9,923,328
the interest ฿93,031,200 £793,866.24
baht profit ฿713,239,200
In pound £10,484,616.24 £10,717,194.24
The second plan is better because the cash flow in pound will be higher