Finance-Case study Analysis

Sabre Computer Corporation Case Study Cost of Capital

Sabre Computer Corporation is a U.S.-based company that plans to participate in joint ventures in Mexico and in Hungary. Each joint venture involves the development of a small subsidiary that helps produce computers. Sabre’s main contributions are the technology and a few key computer components used in the production process. The joint venture in Mexico specifies joint production of computers with a Mexican company owned by the government. The computers have already been ordered by educational institutions and government agencies throughout Mexico. Sabre has a contract to sell all the computers it produces in Mexico to these institutions and agencies at a price that is tied to inflation. Given the very high and volatile inflation levels in Mexico, Sabre wanted to ensure that the contracted price would adjust to cover rising costs over time. The venture will require a temporary transfer of several managers to Mexico plus the manufacturing of key computer components in a leased Mexican plant. Most of these costs will be incurred in Mexico and will therefore require payment in pesos. Sabre will receive 30 percent of the revenue generated (in pesos) from computer sales. The Mexican partner will receive the remainder. The joint venture in Hungary specifies joint production of personal computers with a Hungarian computer manufacturer. The computers will then be marketed to consumers throughout Eastern Europe. Similar computers are produced by some competitors, but Sabre believes it can penetrate these markets because its products will be competitively priced. Although the economies of the Eastern European countries are expected to be somewhat stagnant, demand for personal computers is reasonably strong. The computers will be priced in Hungary’s currency, the forint, and Sabre will receive 30 percent of the revenue generated from sales.

 

1. What are the organizational and external forces at work within this case?

2. Explain the environment within which this International Finance situation is occurring.

3. How might Sabre Computer Corporation finance their exports? Which methods of payments would be most beneficial for the organization?