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3P Turbo Cross Border Investment in Brazil Case Solution & Answer

3P Turbo Cross Border Investment in Brazil Case Study Solution

Introduction

The current unstable government or the new government may formulate certain policies that limit their competitiveness in the competitive Brazilian market, such as increasing tariffs for auto parts manufacturers. This exposes foreign companies to higher tax rates or tariffs that local manufacturers cannot realize, giving them a competitive advantage in 3P turbochargers. In contrast, the country’s economic situation is worse. With the country’s growth rate falling, inflation and interest rates have been increasing, bringing a higher unemployment rate to an all-time high of 10.2%. Therefore, it can be assessed that such economic conditions might cause barriers for 3P Turbo. Additionally, the economic recession will reduce the purchasing power parity of consumers, significantly, so people will see the use of turbochargers as a luxury or a consumer good. This could devastatingly affect the company’s sales in the newly entering Brazilian market, or in the worst case; the country’s automakers may decide to make cars cheaper to attract the low-income groups in Brazil’s economic crisis. In addition to reducing or stopping the use of turbochargers in vehicles manufactured in Brazil. This, in turn, could severely damage the company’s position and profitability in Brazil.(Nelson, 2016).

Cash Flows

The method of calculating cash flows consists of an estimate of the estimated annual sales volume until 2021, and an estimate of the unit price of the products sold annually. This allows us to make a similar estimate of the turnover generated per year, and the unit cost of production refers to the amount of money spent to produce the unit, from the raw material to the finished product. Therefore, the gross margin is obtained by deducting the production costs from the sales revenue and the gross margin from the sales and handling costs incurred during the year. In addition to this, because depreciation costs are tax credits; the amount of depreciation must be deducted in order to calculate the tax which the enterprise must pay in the current year to calculate the amount of tax. After deducting tax from EBIT; depreciation is added to profit after tax, to estimate the company’s cash flow over the five-year time period……………………………

 

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