Danfoss is a global corporation with 28 sales companies in 17 countries and appr

Question

Danfoss is a global corporation with 28 sales companies in 17 countries and approximately 300 resellers and distributors worldwide. Danfoss' corporate headquarters is located in Denmark. With approximately 24,000 employees, an annual revenue of 34.4 million S, and arn export market share of 98%, Danfoss is one of the leading and largest industrial companies in its field. Danfoss produces cooling automation, industrial automation, frequency converters, comfort automation (e.g radiator thermostats), automatic controls for remote heating plants, components for oil buners,thermostats for refrigerators and freezers, compressors for air conditioners, and hydraulics for agricultural and construction machinery. Danfoss has 9 modern factories in 9 countries, at which are produced approximately 225,000,000 components per day Danfoss wants to increase it's production capacity by 25,000,000 components. Therefore they decided to invest in one of the countries they already have a production factory, by building another one with 25,000,000 unit capacity

Explanation / Answer

Answer: As per the chart : Machine in country B, C, F, G, H and I are not producing as per their capacity So these countries should not be selected. Machine in country A and E have less production capacity as comapred to what is newly desired 25 million production capacity. So most suitable country to invest and buy machinery to start production of 25 million components production id Country D Now the cost of machine in that country was in 2010 = $6,000,000 Inflation rate in country D = 4.50% Therefore the value of machine in country D today 2015 = $7,477,091.63 Investment payback in 3 years means per year cash flows = $2,492,363.88 Total revenue = $34,400,000 Therefore Return on revenue per year = $2,477,091.63/$34,400,000 = 0.072452 or 7.25%

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