Question 1 International corporate finance Company description: Bentin Ltd is a company based in Hungary. It was

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Question 1 International corporate finance

Company description:

Bentin Ltd is a company based in Hungary. It was established over 20 years ago and it is run by the founder and his family. Five family members make up management and there are 15 other employees in the business.

The company is involved in making human natural cosmetics products as well as animal care products, using a special mineral that it extracts from its own mine. There is a growing market for these products, although it is very competitive and the retailers and distributors are posing harsh conditions on manufacturers.

The company has grown steadily over the past decades and it has carved out a market niche for itself selling its products on the domestic Hungarian market. Its raw materials are sources almost exclusively from Hungary. Its machinery was purchased from Germany in Europe and it was paid for in euro.

The company is now looking to further grow and it has three major issues related to its growth prospects.

Issue 1:

The company’s sales department is now looking for opportunities outside Hungary since the domestic market’s growth is very limited. It has managed to secure a major sale to South Korea. The shipment is worth approximately 20% of the typical annual sales. They plan to manufacture the export products as soon as the final order confirmation arrives, using overtime if necessary. The official paperwork for the export order is complete, but Bentin is now seeking the best financial possibility for the transaction before its final negotiations with the South Korean customer.

The company normally trades in HUF (Hungarian forint). The HUF is now at 350 HUF to 1 Euro. The forward rates and expectations for the next few months are varied, and the currency has shown some volatility against the euro and dollar over the past six months. However, its current exchange rate is equal to the rates of the major currencies 6 months ago.

Advise Bentin on how it should manage the issues related to (explain each of the items in a paragraph):

Its receivable from the overseas customer (terms of payment and related risks and rewards)
Solutions for the currency of payment: when should it quote its prices and in what currency? Should it use hedging and if so, how for this transaction?

Issue 2:

The company’s current summary balance sheet looks as follows:

Bentin Ltd as at 31.06.2021	HUF millions
Noncurrent assets (machinery and equipment)	1,000
Current assets	200
Total assets	1,200
Share capital	300
Retained earnings	200
Total shareholders’ equity	500
Long-term loan	400
Payables	300
Total liabilites and equity	1,200

The company is now operating at almost full capacity. It is now planning to invest in new machinery and equipment to support its growth and to upgrade to modern requirements. It has investigated the suitability and availability of machinery and it would need to invest EUR 1.5 million in upgrading its operations.

Suggest financing alternatives to its investment in the machinery, given its current financial situation (please note the use of different currencies). The exchange rate is given above. The company prefers to keep ownership in the family. Explain at least three possibilities, with their advantages and disadvantages.

Issue 3:

Bentin is planning to expand its operations internationally over the next 5 years and it would plan to double its sales (currently approximately HUF 1,500 million). Suggest some expansion pathways and considerations that it would need to take into account when it undertakes such moves.

In one paragraph, explain the major strategic considerations given its business for internationalisation
In another paragraph, briefly explain some realistic avenues it may follow in its expansion