A large US based bottling company is considering an investment in a manufacturin
ID: 2788119 • Letter: A
Question
A large US based bottling company is considering an investment in a manufacturing facility in one of two low cost countries: Philippines and China. The following applies:
Philippines
China
Investment price
2400 million pesos
665 million RMB
Cost per Bottle
20 pesos
3.5 RMB
Projected Annual Cost Savings
600 million pesos
140 million RMB
Additional Investment of Imported Equipment
25 million US$
25 million US$
Exchange Rate
Pesos 40 / US$
RMB 7/US$
Which investment is projected to generate a greater cost savings (as percentage of the investment) on investment?
Philippines
China
There are the same
None of above
Philippines
China
Investment price
2400 million pesos
665 million RMB
Cost per Bottle
20 pesos
3.5 RMB
Projected Annual Cost Savings
600 million pesos
140 million RMB
Additional Investment of Imported Equipment
25 million US$
25 million US$
Exchange Rate
Pesos 40 / US$
RMB 7/US$
Explanation / Answer
Total Dollar Investment in Philippines = 2,400 Peso / 40 Peso
= $60 Million
Total Dollar Investment in China = 665 RMB / 7 RMB
= $95 Million
Total Cost saving in in dollar in Philippines = 600 / 40
= $15 million.
Cost saving as percentage of cost = $15 million / $60 million
= 25%
Cost saving as percentage of cost in Philippines is 25%.
Total Cost saving in in dollar in China = 140 / 7
= $20 million.
Cost saving as percentage of cost = $20 million / $95 million
= 21.05%
Cost saving as percentage of cost in China is 21.05.%.
cost savings (as percentage of the investment) on investment in Philiphines is high, so comapny should install plant in Philiphines.
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