Q-3
Subject:BusinessPrice: Bought3
Q-3. Assuming the plant would be operating for the next 10 years, do the annual cost savings justify the upfront investment in either China or Mexico? (note that you will need to make an assumption for the annual inflation rate for production cost and transportation cost in each of the 3 countries (the general inflation rate), as well as the annual rate of change in labor rates in each of the 3 countries. Assume Polaris has a weighted average cost of capital of 12%. Use the 2010 exchange rates in your model for all years. Assume all one time costs occur in 2010, and the first year of operation is 2011.
Q -5. Would your answer change if labor rates in either Mexico or China increased by 25% annually after startup of a new facility, rather than what you assumed in #3?
