Question: A firm must decide whether to make a component part in-house or to contract it out to an independent supplier. Manufacturing the part requires a

A firm must decide whether to make a component part in-house or to contract it out to an independent supplier. Manufacturing the part requires a nonrecoverable investment in specialized assets. The most efficient suppliers are located in countries with currencies that many foreign exchange analysts expect to appreciate substantially over the next decade.

What are the pros and cons of

(a) Manufacturing the component in-house and

(b) Outsourcing manufacturing to an independent supplier? Which option would you recommend? Why?

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