Multinational Capital Budgeting by the Sports Exports Company:
Jim Logan, owner of the Sports Exports Company, hasbeen pleased with his success in the United Kingdom.He began his business by producing footballs andexporting them to the United Kingdom. WhileAmerican-style football is still not nearly as popularin the United Kingdom as it is in the United States,his firm controls the market in the United Kingdom.Logan is considering an application of the same businessin Mexico. He would produce the footballs in theUnited States and export them to a distributor of sportinggoods in Mexico, who would sell the footballs toretail stores. The distributor likely would want to payfor the product each month in Mexican pesos. Loganwould need to hire one full-time employee in theUnited States to produce the footballs. He would alsoneed to lease one warehouse.
1. Describe the capital budgeting steps that would benecessary to determine whether this proposed project isfeasible, as related to this specific situation.
2. Explain why there is uncertainty surrounding thecash flows of this project.Chapter 14