case study kimtron electronics
Kim Electronics (Kimtron). Product. Kim Electronics (Kimtron) is the wholly owned Korean affiliate of Fairtel, a U.S. electronic component manufacturer. Fairtel manufactures customized integrated circuits (Ics) for use in computers , automobiles, and robots. Kimtron has been Fairtel’s distribution affiliate in Korea, but consideration is now being given to making Kimtron a manufacturing affiliate. Kimtron’s products would be sold primarily in Korea, and all sales would be denominated in Korean won.
Sales. Sales in the first year are forecasted to be Won 22,000 million. The physical volume of sales is expected to grow at 8% per annum for the foreseeable future.
Working capital. Kimtron needs gross working capital (that is, cash, receivables, and inventory) eaqual to 20 % of sales. Half of gross working capital can be financed by local accruals and accounts payable, but the other half must financed by Kimtron or Fairtel.
Inflation. Price are expected to increase as follows.
Korean general price level: +6% per annum
Korean labor costs: +8% per annum
Kimtron average sales price: +6% per annum
U.S. general price level: +3% per annum
Korean raw material costs: +2% per annum
Parent supplied components. Components sold to Kimtron by Fairtel have a direct cost to Fairtel equal to 96% of their sales price.
Depreciation. Plant and equipment will be depreciated on a straight-line basis for both accounting and tax purposes over an expected life of eight years. No salvage value is anticipated.
License fees. Kimtron will pay a license fee of 2 % of sales revenue to Fairtel. This fee is tax-deductible in Korea but provides taxable income to Fairtel.
Taxes. The Korean corporate income tax rate is 30% , and the U.S. rate is 34%. Korea has no withholding tax on dividends, interest, or fees paid to foreign residents.
Cost of capital. The weighted averagew cost of capital used in
Sales. Sales in the first year are forecasted to be Won 22,000 million. The physical volume of sales is expected to grow at 8% per annum for the foreseeable future.
Working capital. Kimtron needs gross working capital (that is, cash, receivables, and inventory) eaqual to 20 % of sales. Half of gross working capital can be financed by local accruals and accounts payable, but the other half must financed by Kimtron or Fairtel.
Inflation. Price are expected to increase as follows.
Korean general price level: +6% per annum
Korean labor costs: +8% per annum
Kimtron average sales price: +6% per annum
U.S. general price level: +3% per annum
Korean raw material costs: +2% per annum
Parent supplied components. Components sold to Kimtron by Fairtel have a direct cost to Fairtel equal to 96% of their sales price.
Depreciation. Plant and equipment will be depreciated on a straight-line basis for both accounting and tax purposes over an expected life of eight years. No salvage value is anticipated.
License fees. Kimtron will pay a license fee of 2 % of sales revenue to Fairtel. This fee is tax-deductible in Korea but provides taxable income to Fairtel.
Taxes. The Korean corporate income tax rate is 30% , and the U.S. rate is 34%. Korea has no withholding tax on dividends, interest, or fees paid to foreign residents.
Cost of capital. The weighted averagew cost of capital used in