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India's Expected GDP Growth

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Cost and Savings of Doing Business in India

Scenario

The firm manufactures a global positioning system (GPS) that sells for $1,000 with cost of goods sold (hardware and software) of 48% of sales.

Compared to the United States, India offers a 32% reduction in software programming costs.

Thus far, you have been unable to determine if India has the facilities to undertake the hardware manufacturing.

Please answer the following questions after researching the questions for India

1. What is India's Expected GDP Growth-

2. Based Forecasted Exchange Rates to the U.S. Dollar in 1 & 2 years, should the US$200 Million be paid immediately, hedged, or 50% per years 1 & 2? -

3. What is the projected savings for the firm? -

4. What is the new cost of goods sold percentage of sales for this country? -

5. How can the firm arrange the business to be most profitable? -

6. Please cite all references

Thank you!

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Solution Summary

India's Expected GDP Growth is cited.

Solution Preview

This question is very similar to the one we saw earlier but that dealt with China. The difference is that now we do not have information on hardware savings, and do not even have the information whether there will be any!

Like last time, let us take this into three different possibilities:

1. 25% of the cost is in hardware, 75% is in software
2. 50% of the cost is in hardware, 50% is in software
3. 75% of the cost is in hardware, 25% is in software

48% of price is cost if the product is made in the US. Thus for a product selling for $1000, the cost is $480.

Let us take each case one by one.

In the first case:
In the case where breakup is 25% hardware, and 75% software, out of the $480, the company spends $120 on hardware and $360 on software.
In case the product is made in India, they save 32% on software, and there is no information on hardware. Assume that there are no savings on hardware. Thus the cost is $120 on hardware and $244.8 on software. The total cost therefore is $364.8.
Cost is 36.48% of price in this case.

In the second case:
In the case where breakup is 50% hardware, and 50% software, out of the $480, the company spends $240 on hardware and $240 on software.
In case the product is made in India, the cost is $240 on hardware and $163.2 on software. The total cost therefore is $403.2.
Cost is 40.32% of the price in this case.

In the third case:
In the case where breakup is 75% hardware, and 25% software, out of the $480, the company spends $360 on hardware and $120 on software.
In case ...

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