Photo AI
Speedy Scooters Pty Ltd plans to expand overseas - HSC - SSCE Business Studies - Question 24 - 2001 - Paper 1
Question 24
Speedy Scooters Pty Ltd plans to expand overseas. Its current performance indicators are: - retained profits $2 million - debt to equity ratio 0.5 : 1 - Australia... show full transcript
Worked Solution & Example Answer:Speedy Scooters Pty Ltd plans to expand overseas - HSC - SSCE Business Studies - Question 24 - 2001 - Paper 1
Step 1
Outline TWO methods of international expansion that might be used by this business.
Answer
-
Exporting: This involves selling goods produced in one country to another market. Speedy Scooters could leverage its existing products and access international markets without significant investment in foreign locations.
-
Foreign Direct Investment (FDI): This method entails investing directly in facilities to produce or market a product in a foreign country. Speedy Scooters could establish manufacturing plants or sales offices overseas.
Step 2
Analyse the impact of ONE internal and ONE external source of funds on the performance indicators of Speedy Scooters Pty Ltd.
Answer
-
Internal Source - Retained Profits: Retained profits provide funds for internal financing without increasing debt. By utilizing retained earnings, Speedy Scooters can invest in expansion initiatives, potentially increasing market share and sustaining its current debt-to-equity ratio.
-
External Source - Loans: Taking a loan can provide immediate cash for expansion. However, this increase in debt may negatively impact the debt-to-equity ratio. If not managed properly, increasing debt could pose risks to financial stability as it could lead to higher interest obligations.
Step 3
Assess the possible impacts of currency fluctuations on the plans of Speedy Scooters Pty Ltd for overseas expansion.
Answer
Currency fluctuations can significantly affect profitability and planning. For instance, if the Australian dollar strengthens against foreign currencies, Speedy Scooters may find its products more expensive in overseas markets, potentially lowering competitiveness. Conversely, a weaker dollar could enhance competitiveness abroad but increase costs of imported materials. Therefore, effective currency risk management and strategic planning are crucial for maintaining profitability in international ventures.