Blades, Inc. Case Decisions to Use International FinancialMarkets As a financial analyst for Blades, Inc., you are reasonablysatisfied with Blades’ current setup of exporting “Speedos” (rollerblades) to Thailand. Due to the unique arrangement with Blades’primary customer in Thailand, forecasting the revenue to begenerated there is a relatively easy task. Specifically, yourcustomer has agreed to purchase 180,000 pairs of Speedos annually,for a period of 3 years, at a price of THB4,594 per pair. Thecurrent direct quotation of the dollar-baht exchange rate is $.024.The cost of goods sold incurred in Thailand (due to imports of therubber and plastic components from Thailand) runs at approximatelyTHB2,871 per pair of Speedos, but Blades currently only importsmaterials sufficient to manufacture about 72,000 pairs of Speedos.Blades’ primary reasons for using a Thai supplier are the highquality of the components and the low cost, which has beenfacilitated by a continuing depreciation of the Thai baht againstthe U.S. dollar. If the dollar cost of buying components becomesmore expensive in Thailand than in the United States, Blades iscontemplating providing its U.S. supplier with the additionalbusiness. Your plan is quite simple; Blades is currently using itsThai-denominated revenues to cover the cost of goods sold incurredthere. During the last year, excess revenue was converted to U.S.dollars at the prevailing exchange rate. Although your cost ofgoods sold is not fixed contractually as the Thai revenues are, youexpect them to remain relatively constant in the near future.Consequently, the baht-denominated cash inflows are fairlypredictable each year because the Thai customer has committed tothe purchase of 180,000 pairs of Speedos at a fixed price. Theexcess dollar revenue resulting from the conversion of baht is usedeither to support the U.S. production of Speedos if needed or toinvest in the United States. Specifically, the revenues are used tocover cost of goods sold in the U.S. manufacturing plant, locatedin Omaha, Nebraska. Ben Holt, Blades’ CFO, notices that Thailand’sinterest rates are approximately 15 percent (versus 8 percent inthe United States). You interpret the high interest rates inThailand as an indication of the uncertainty resulting fromThailand’s unstable economy. Holt asks you to assess thefeasibility of investing Blades’ excess funds from Thailandoperations in Thailand at an interest rate of 15 percent. After youexpress your opposition to his plan, Holt asks you to detail thereasons in a detailed report.

1.)Construct a spreadsheet to compare the cash flows resultingfrom two plans. Under the first plan, net baht-denominated cashflows (received today) will be invested in Thailand at 15 percentfor a 1-year period, after which the baht will be converted todollars. The expected spot rate for the baht in 1 year is about$.022 (Ben Holt’s plan). Under the second plan, netbaht-denominated cash flows are converted to dollars immediatelyand invested in the United States for 1 year at 8 percent. For thisquestion, assume that all baht-denominated cash flows are duetoday. Does Holt’s plan seem superior in terms of dollar cash flowsavailable after 1 year? Compare the choice of investing the fundsversus using the funds to provide needed financing to the firm.