SMALL BUSINESS DILEMMA
Multinational Capital Budgeting by the Sports Exports Company
Jim Logan, owner of the Sports Exports Company, has been pleased with his success in the United Kingdom. He began his business by producing footballs and exporting them to the United Kingdom. While American-style football is still not nearly as popular in the United Kingdom as it is in the United States, his firm controls the market in the United Kingdom. Logan is considering an application of the same business in Mexico. He would produce the footballs in the United States and export them to a distributor of sporting goods in Mexico, who would sell the footballs to retail stores. The distributor likely would want to pay for the product each month in Mexican pesos. Logan would need to hire one full-time employee in the United States to produce the footballs. He would also need to lease one warehouse.
1. Describe the capital budgeting steps that would be necessary to determine whether this proposed project is feasible, as related to this specific situation.
2. Explain why there is uncertainty surrounding the cash flows of this project.