2 Without using a numerical analysis, do you think establishing a subsidiary in Thailand or acquiring Skates’n’Stuff will result in a higher assessment of political risk? Of financial risk? Substantiate your answer.

Recently, Ben Holt, Aussie Blades’ CFO, has assessed whether it would be more beneficial for Aussie Blades to establish a subsidiary in Thailand to manufacture rollerblades, or to acquire an existing manufacturer, Skates’n’Stuff, which has offered to sell the business to Aussie Blades for 1 billion Thai baht. In Holt’s view, establishing a subsidiary in Thailand yields a higher net present value than acquiring the existing business.

Furthermore, the Thai manufacturer has rejected an offer by Aussie Blades, of 900 million baht. A purchase price of 900 million baht for Skates’n’Stuff would make the acquisition as attractive as the establishment of a subsidiary in Thailand in terms of NPV. But Skates’n’Stuff has indicated that it is not willing to accept less than 950 million baht.