7. Brazil Locations For GBATT
GBATT’s WACC
GBATT’s WACC = (.6*.09) + ((.4*.09) * (1-.35)) = (0.054) +
((0.036) * (.65))
= (0.054 + 0.0234 = 0.0774 = 7.74%
NPV For Each Project
NPV Values 2-5 = 11.34989225 NPV Values 2-5 =
11.34989225
NPV Values 6-7 = 11.59933423 NPV Values 6-7 =
11.59933423
1 to 254 payments and income, equally spaced in time
occurring at the end of each period
8. Exchange Rates
•The current exchange rates of United States Dollar (USD) $ for
Brazilian Real (BRL) R$ was 1 US $ for 3.0261 (BRL) R$
(finance.yahoo.com).
•Current Currency Calculations
•The current exchange rates convert to the NPV’s to the Brazil
real - 3.0261 (BRL) R$ for 1 US $: 3.0261 * 11.34989225 =
34.3459089377; 3.0261 * 11.59933423 = 35.1007453134.
9. Brazil Locations For GBATT
Recommendations
•NPV : is choice B net present value of cash flows for the decision
making investments in Brazil
•Brazil currency grade was excellent (Prasanna, 2008.p.7).
•“The Boves Pa Index…” (Tabak et al., 2006.p.2).
• The selection of a location for GBATT in Brazil is Indaiatuba
11. References
Bekaert, Geert J, and Robert J. Hodrick. International Financial Management, 9th Edition. Pearson Learning Solutions, 2011. VitalBook file.
Brazil. (2013). Latin America Monitor: Brazil Monitor, 20(7), 1-8. Retrieved From EBSCO.
http://web.a.ebscohost.com.libproxy.edmc.edu/ehost/pdfviewer/pdfviewer?vid=56&sid=cac6fdf2-81ea-4e26-8256-37e92a4e72b1%40sessionmgr4003&hid=4112
Brazil drought is Q1's biggest economic loss. (2014). Reactions, 1. Retrieved From EBSCO.
http://web.a.ebscohost.com.libproxy.edmc.edu/ehost/detail/detail?vid=44&sid=cac6fdf2-81ea-4e26-8256-
37e92a4e72b1%40sessionmgr4003&hid=4112&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=bth&AN=96581900
Currency Converter. finance.yahoo.com/currency-converter. Monday, April 20, 2015.Retrieved from finance.yahoo.com http://finance.yahoo.com/currency-
converter/?u#from=USD;to=BRL;amt=1
ENVIRONMENTAL OVERVIEW. (2008). Brazil Country Review, 147. Retrieved From EBSCO.
http://web.a.ebscohost.com.libproxy.edmc.edu/ehost/pdfviewer/pdfviewer?vid=42&sid=cac6fdf2-81ea-4e26-8256-37e92a4e72b1%40sessionmgr4003&hid=4112
Living in Brazil – Indaiatuba. expatarrivals.com. April 20, 2015. Retrieved From http://www.expatarrivals.com/answers/living-in-brazil-indaiatuba
Júnior, J. R. (2011). Exchange Rate Exposure, Foreign Currency Debt, and the Use of Derivatives: Evidence from Brazil. Emerging Markets Finance & Trade, 47(1), 67-89.
doi:10.2753/REE1540-496X470104. Retrieved From EBSCO. http://web.a.ebscohost.com.libproxy.edmc.edu/ehost/pdfviewer/pdfviewer?vid=4&sid=cac6fdf2-81ea-4e26-8256-
37e92a4e72b1%40sessionmgr4003&hid=4112
Prasanna, P. K. (2008). Relative Strength Analysis of BRIC Currencies. ICFAI Journal Of Management Research, 7(1), 77-85. Retrieved From EBSCO.
http://web.a.ebscohost.com.libproxy.edmc.edu/ehost/pdfviewer/pdfviewer?vid=7&sid=cac6fdf2-81ea-4e26-8256-37e92a4e72b1%40sessionmgr4003&hid=4112
TABAK, B. M. (2006). THE DYNAMIC RELATIONSHIP BETWEEN STOCK PRICES AND EXCHANGE RATES:: EVIDENCE FOR BRAZIL. International Journal Of
Theoretical & Applied Finance, 9(8), 1377-1396. Retrieved From EBSCO. http://web.a.ebscohost.com.libproxy.edmc.edu/ehost/pdfviewer/pdfviewer?vid=4&sid=73cb43bc-
be7b-4eba-a323-9678208ed57e%40sessionmgr4003&hid=4112
The John Deer Construction & Forestry Division.forconstructionpros.com. April 20, 2015. Retrieved from www.forconstructionpros.com/press
When rates are low, the tax advantage is not very large. forbes.com. April 22, 2015. Retrieved From http://www.forbes.com/sites/marcprosser/2013/04/20/are-municipal-bonds-
currently-a-good-investment/
10-best-places-to-visit-in-brazil. ALK3R. April 20, 2015. Retrieved From https://alk3r.wordpress.com/2014/02/26/10-best-places-to-visit-in-brazil/
Images. Retrieved From bing.com. April 20, 2015.
http://www.bing.com/images/search?q=brazil+map+and+indaiatuba&view=detailv2&id=7B394597132DFCCE9AF0B8641105E141C359F8E9&selectedindex=2&ccid=GKpRQ
z9Z&simid=608035406780629406&thid=JN.vc9SgVlhSzdlvCVlR4cKQQ&mode=overlay&first=1
Editor's Notes
My name is Shirley Layne and I have prepared an Executive Report for GBATT. I am a Doctoral Business of Administration student at Argosy University, Phoenix, Arizona.
Overview on topics to be discussed.
The Map of Brazil.
Images (bing.com).
Analysis of GBATT decision making on expansion operations in Brazil benefits from the NPV of choice B cash flows showed the retain of revenue from the cash flows. The cash flows is just the surface of expansion operations, the decision making on expansion operations also includes a location, the exchange risks, country risks, and political risks. The selection of a location in Brazil can include Indaiatuba and Manaus. Indaiatuba is local in São Paulo, São Paulo is the capital of Brazil; it is a 90 minutes’ drive from Indaiatuba to São Paulo (expatarrivals.com). Indaiatuba is south of São Paulo. Besides this, “… John Deer Construction & Forestry Division has two locations in Indaiatuba Brazil ...” (forconstructionpros.com).
Images (bing.com).
Manaus is in the northwestern part of Brazil and on ALK3R list of The Ten Best Places To Visit in Brazil and a tourist attraction.
Images (bing.com).
The exchange risks was on the devalue of the Brazilian real in Brazil stock market; this revalue of the currency “… led to a fall in the average company’s stock market returns, …”(Junior, 2011.p.2). The fall in the average company’s stocks lessen revenues for companies in Brazil. Correspondingly in exchange risks, “… exchange rates lead stock prices”. (Tabak, 2006.p.1). The observation on the currency exchanges rates of Brazil real in Brazil stock market can be notes for the CFO to aid in the decision making. The country risks included “… drought…” (Reactions); “… forest fires and flooding …” (Brazil Country Review); and routine “ … Natural Hazards: - recurring droughts in northeast – floods and occasional frost in South …” (Brazil Country Review). The political risks included “ … ongoing tensions between business interests and many of Brazil’s indigenous tribes, …; … infrastructure bottlenecks …; … tax burden… ; … gang violence …; … corruption …; and … drug trafficking… ” (Latin America Monitor). The social risks included “… poverty…”; low “… educational attainment…”, the educational attainment level was “… well below the OECD average of 74% ... Brazil 33rd out of 40 OECD countries”. (Latin America Monitor).
The Value of A Company’s WACC and NPV function is for different purposes to determine the a company cost of debt. The WACC purpose is to project “…all-equity free cash flows and then finding the value of the levered firm by discounting the all-equity free cash flows…”(Bekaert & Hodrick 2011.p.555). The WACC projection includes calculation for taxes. The NPV purpose to project the present value of the company cost of debt and the frequency of reoccurrence on the cash flows. (Bekaert & Hodrick et al., 2011.p.554). Bekaert & Hodrick et al., (2011) analysis of the functions of WACC and NPV selected NPV as reliable in projecting the value of MNCs cost of debt in an international country (.p.522). The recommendation is to use choice B net present value of cash flows for the decision making investments in Brazil.
GBATT’s WACC = (.6*.09) + ((.4*.09) * (1-.35)) = (0.054) + ((0.036) * (.65)) = (0.054 + 0.0234 = 0.0774 = 7.74%
NPV Values 2-5 = 11.34989225 NPV Values 2-5 = 11.34989225
NPV Values 6-7 = 11.59933423 NPV Values 6-7 = 11.59933423
1 to 254 payments and income, equally spaced in time occurring at the end of each period.
GBATT decision making on expansion operations in Brazil benefits can also include the current exchange rates of United States Dollar (USD) $ for Brazilian Real (BRL) R$ was 1 US $ for 3.0261 (BRL) R$ (finance.yahoo.com). The current exchange rates convert to the NPV’s to the Brazil real - 3.0261 (BRL) R$ for 1 US $: 3.0261 * 11.34989225 = 34.3459089377; 3.0261 * 11.59933423 = 35.1007453134.
GBATT current capital structure is:
60% equity and 40 % debt, the equity suggests the possibility for GBATT to expand. The perception to increase capital by planning to establish a location in Brazil is an excellent one.
Stockholders require 6% return on their investment; this rate of return on investment is too low. Stockholders should be informed that their return on investments can increase. The increase on the return on investments will attract investors with a higher bankroll. 10% is a macroeconomic rate for return on investments.
Bondholders require a 3% return on their investments; the rate of return on the investment is too low. Bondholders should be informed that their return on investments can increase. The increase on the return on investments will attract investors, stockholders return on investment will increase and GBATT will generate more profits. The return on investments for bondholders should increase to over 5%. Investors can benefit from bondholders purchasing bonds at 105% or higher; the profit can also include benefits from “… tax advantage…” (forbes.com) if the return on investments rates for stockholders and bondholders increase.
In Layne 2015, " ... operating cost was GBATTs' taxes at 35%, this tax basis suggested that the local location of GBATT has a high tax rate, and, maybe GBATT should consider closing the local operation and choosing another location, to open and conduct business to be more profitable, and also, limit the costs of taxes to GBATT." (.p.1).
GBATT decision making on expansion operations in Brazil benefits can also include the current exchange rates of United States Dollar (USD) $ for Brazilian Real (BRL) R$ was 1 US $ for 3.0261 (BRL) R$. (finance.yahoo.com), Brazil is “… set for an oil and gas boom …” (Latin America Monitor) in the future, and investments will increase in Brazil because of the oil and gas boom. Brazil has the “ … largest consumer bases …” (Latin America Monitor), the consumers in Brazil speculation for investments is excellent for decision making to expand operations in Brazil. For example, China imports from Brazil and venture capital in and from Brazil “… boosted econ-nomic activity and drove currency ap-preciation”. (Latin America Monitor). China has share in the profits from Brazil economy. The Brazil “… GDP per capita more than triple between 2000 and 2012 to US $ 11,354, …” (Latin America Monitor), the economy growth is another indicator for decision making, Conversely, Brazil has “… high cost of doing business in Brazil… “ (Latin America Monitor) but the high cost of doing business can be offset with the currency exchange: 3.0261 (BRL) R$ for 1 US $. Additionally, Brazil currency grade was excellent among the other developing countries’ currencies grade ( Prasanna, 2008.p.7). Tabak et al., (2006) expressed “The Boves Pa Index (the São Paulo Stock Exchange Index, the most important Stock index in the country)…” (.p.2) was the stock exchange to utilize for observation and decision making on application of stocks in Brazil. The recommendation is to use choice B net present value of cash flows for the decision making investments in Brazil. The recommendation for the selection of a location for GBATT for expansion operations in Brazil is Indaiatuba.
