Foreign Payments-Vignette 9 To: BPG Management Team From: J. P. Jordan, Chair, B

Question

Foreign Payments-Vignette 9 To: BPG Management Team From: J. P. Jordan, Chair, Board of Directors Subject: Foreign Payments Our firm has in our sales, from Lumar, a medium-sized state-owned firm in Africa. The order would be filled over the next four quarters with a potential of orders continuing ind nitely. One of the unwritten specifications of the order is that we increase our price by 10 percen Lumar as a finder's fee. Finder's fees such as this are common practice in the country with very little chance of discovery. The government has more pressing problems on which to concentrate. just received a large order, representing as much as a 35 percent increase efi- t. We would then forward the 10 percent premium to the sales manager of This offer looks very attractive due to its volume and future potential. However, I have some concern with the payment of the finder's fee. Please meet me to discuss this opportunity. I would like your views on the following tomorrow at 8 a.m. 1. The profit potential of the offer. 2. Our capability to supply the additional volume

Explanation / Answer

1) The profit potential of the offer -

Since the volume of the offer that Lumar is offering is high, the profits associated with it will reasonably be good. Since the profits are directly proportional to the volume, the profit potential of the offer will also be proportional to the volume that is generated. In the other words, better the volume, better will be the profits.

2) Our capability to supply the additional volume -

As per Lumar, the volume of the order will increase over the next four quarters. It means that the volume will not be same, and will exponentially increase. Since the volume will increase exponentially over the year, company could slowly prepare itself, plan and forecast for the future expected demand. If the volume is unexpected over the next few quarters, even then there will be a scope of determining the uncertainty in the demand and forecast for the possible volume that might be required to supply. In either of the cases, the capacity to supply the additional volume can be taken care off by allocating additional manpower to the jobs, with extended work hour shifts. Therefore, the capacity to supply additional volume should not be a problem.

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