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Mathematics

Solution to Megan’s concern

Megan Bedding, vice-president of sales for International Microcircuits, Inc. (IM), was delighted when IM was one of the few firms invited to enter a bid to supply a large industrial customer with their major product in a small foreign country. However, her top salesperson for that region had just called and informed her of certain “expectations” of doing business in the country:

1. Local materials at least 50 percent of the products value must be purchased in reciprocity.

2. The local politicians will expect continual significant donations to their party.

3. Industrial customers normally receive a 40% “rebate” (kick back) when they purchase goods from suppliers such as IM. (IM’s profit margin is only 20%.)

With this new information, Megan was unsure about changing or proceeding with the bid. If it was withdrawn, a lot of effort would be wasted as well as a chance to get a foothold in the international market. But if she proceeded, how could these expectations be met in a legal and ethical way?

In any business transactions, there always lies the fear of uncertainty about what the future holds for the business. These uncertainties range from the costs of production of a product to the manufacturing process and most significantly the fluctuations in market prices. However, there are may arise unexpected terms and conditions from the customer that must be met by the client before the transaction of a business activity takes its course.   One such case is of Megan, the vice-president of the International Microcircuits Inc. whom she is divided on what to do so as to have a better grip in the international market as well as meeting the conditions of her customer.

Overview and Objectives

The objective of the course is to familiarize the participants with how organizations should make financial decisions.   For a firm, these decisions are:

* The real asset decision:

* How should the firm invest in real productive assets?

* How should the firm assess risk?

* The financing decision

To assist her reduce the risk of stretching past her company’s profit limit of 20%, the 50%percent of value of products bought on reciprocity  is  subtracted from the total percentage of value of products sold. The value obtained is divided by 40% of rebate, then multiplying by 20% of the profit margin fro the value obtained.