List all the factors that the Pearl Brewery Co. should consider when deciding to continue...
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List all the factors that the Pearl Brewery Co. should consider when deciding to continue to export beer from San Antonio versus brewing beer in Valencia near Caracas.
Despite this added 55% surcharge when exporting to Venezuela, suppose that the Valencia facility could produce the following free cash flows in millions of VEF's:
Year
0
1
2
3
4
5
Cash Flows
-8.5
1.5
3.5
3.0
2.0
5.5
The nominal interest rate in the US is 4% (30-year T-Bond) while the rate in Venezuela is 10% (30-year Sovereign). The current Spot Rate is: VEF 6.29287/$ as of 6/28/2015.
The 180-day Forward Rate is: $ 0.15700/ 1 VEF. Venezuelan lending rates are 6%. The 180 day strike price for the Put Option to sell the VEF is: $0.15695/VEF with a 0.4 cent premium per VEF. Does this make sense to produce this fine beer in Valencia? Justify
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