In the past few years, Brazil had gotten their hyperinflation under control and it was estimated to be 8% in the future. Brazil was the second largest trading partner with the US and the nation’s economy was going to be the sixth largest in the world by 2015. For Wiley and the automobile industry Brazil’s 3-4% growth rate in the next few years presented a great opportunity given its influence in the Latin American economies. Other advantage and disadvantages of locating its operations in Brazil included:
Advantages
High number of diverse and skilled industrial workforce. Significant decline in import tariffs. Supply from a single point that increased economies of scale. Low ratio of people to automobiles. In developed countries, it is …show more content…
The break-even analysis completed for each of the above assumptions revealed how sensitive each of the assumption is in terms of a percentage amount to the NPV calculation. Basically, the lower the absolute change in percentage the more sensitive the assumption is to the NPV calculation.
The projected volume (1), price per unit (3) and production cost per unit (6) rank in the top six most sensitive assumptions to the NPV calculation. If Wiley International does not make enough, charge enough or the motors cost too much than NPV will be negative and this project will not provide value for the company and therefore not worth pursing. The break even for Projected Volume: 143 vs. 200 (assumption); Price per Unit (Brazil): 70.84 vs. 72.8 (assumption) and Production Cost per Unit (Brazil): 29.96 vs. 28 (assumption).
Inflation in Brazil (2) ranks as second most sensitive assumption to the NPV calculation. The break even for Brazil Inflation: 9.79 vs. 8% (assumption). If inflation is to increase above 9.79%, which is only 1.79% above the assumption than NPV will be negative. The break even for Brazil Inflation: is 9.79% vs. 8% (assumption). It is important to note that Brazil has already had hyperinflation within the past few
Advantages
High number of diverse and skilled industrial workforce. Significant decline in import tariffs. Supply from a single point that increased economies of scale. Low ratio of people to automobiles. In developed countries, it is …show more content…
The break-even analysis completed for each of the above assumptions revealed how sensitive each of the assumption is in terms of a percentage amount to the NPV calculation. Basically, the lower the absolute change in percentage the more sensitive the assumption is to the NPV calculation.
The projected volume (1), price per unit (3) and production cost per unit (6) rank in the top six most sensitive assumptions to the NPV calculation. If Wiley International does not make enough, charge enough or the motors cost too much than NPV will be negative and this project will not provide value for the company and therefore not worth pursing. The break even for Projected Volume: 143 vs. 200 (assumption); Price per Unit (Brazil): 70.84 vs. 72.8 (assumption) and Production Cost per Unit (Brazil): 29.96 vs. 28 (assumption).
Inflation in Brazil (2) ranks as second most sensitive assumption to the NPV calculation. The break even for Brazil Inflation: 9.79 vs. 8% (assumption). If inflation is to increase above 9.79%, which is only 1.79% above the assumption than NPV will be negative. The break even for Brazil Inflation: is 9.79% vs. 8% (assumption). It is important to note that Brazil has already had hyperinflation within the past few