Answer to Question #79664 in Finance for Justin Jian Hui Lam

Question

Comparing International Projects. Billabong Limited, a manufacturer of surfing clothing and sports equipment, wants to increase its market share by acquiring a target producing a popular clothing line in Europe. This clothing line is well established. Forecasts indicate a relatively stable euro over the life of the project. Harvey Norman Limited, a retailer of computer, furniture and related goods wants to increase its market share in the computer market by acquiring a target in Thailand that currently produces radios and converting the operations to produce PCs. Forecasts indicate a depreciation of the baht over the life of the project. Funds resulting from both projects will be remitted to the respective Australian parent on a regular basis. Which target do you think will result in a higher net present value? Why?

Answer 1

I believe that Billabong Limited, a manufacturer of surfing for clothing and sports equipment, is more effective and more profitable than Harvey Norman Limited, a retailer of computers, furniture and related products. Therefore, the net present value of the manufacturer of surfing will be greater in the future. The reasons for this choice are that the company Billabong Limited has purchased products whose reputation the manufacturer is high enough to confirm the quality of the products received by customers, as opposed to the computer company that sells products from Thailand.