Customer is in Sweden and wants to buy 100 of your sail boats

INSTRUCTIONS TO CANDIDATES

ANSWER ALL QUESTIONS

Customer:

Customer is in Sweden and wants to buy 100 of your sail boats. They want to buy these boats on Open Terms at 90 days, but are willing to pay on net 30 for a 1% discount. The value of each boat is $5,000. It will take 2 weeks to ship the products to Sweden from Canada's manufacturing plant.

Operations:

It takes 5 weeks to build the boats if you work with supplier from America. If you opt to go for cheaper components and buy from supplier in China it will take you 6 weeks. Production costs $150 per week for each boat built. Suppliers:

In order to build these boats you have two suppliers who work with you. Supplier A sells you a critical component (the engines) for $500 per component. They want cash in advance, but are willing to offer you open terms on net 60 if you pay an additional 2% for the total cost of the order. They are located in Canada, and take 4 weeks to ship to

you.

Supplier B from America sells you a non-critical

component (fabric to make the sails) and is located in USA. They are willing to sell to you on open terms net 90 and charge $600 per component. They will take 2 weeks to ship to you.

As an alternative to Supplier B from America you could choose to work with the Chinese supplier. They will sell to you components at $475 per component, but require payment by an LC. They will take 6 weeks to ship to you.

Financial information:

• You can borrow at 10% interest rate on your line of credit

FX forwards are issued at 1.5% of the contract value Issuing an LC costs 1%

• Confirming an LC costs 3%

⚫ARI costs 0.50% for Sweden, 0.75% for Italy

Equipment:

In order to produce these boats you will need some new equipment.

You can buy this equipment for $200,000 and can pay cash up-front, or finance it over 5-years with interest at 7%. The payments will be straight-line payments with the full value being paid out by the end of year 5.

You can also lease the equipment - the residual value will be $140,000 after 5-years. The lease rates are at 12%, and are paid straight-line.

Attachments:

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