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TCAS Case Analysis

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  1. TCAS Case Analysis Presented by: Erica Judd Cornel Jurca Jiajia Ou Jerry Ramos Summer 2007 International Finance 570 Professor: Dr. Joseph Greco

  2. TCAS Organizational Profile • Transnational Corporate Advisory Services (TCAS) Inc Founded by three partners in 1982 • In 1988: Merged with Computer Software and Systems Company • Primarily a financial training and consulting firm • Key assets: Knowledge and skills of the three founding partners in the field of finance, production and marketing • Business lines include • Purchases and sales of companies & raising capital • Business development & financial consulting • Management information systems

  3. Founders • Gerhard Muck, Managing Partner, Specializes in strategic planning, acquisition of international investors and numerous M&A activities. • Robert Fotter, Partner, Expert consultant to mid-sized businesses in corporate financing and procuring holding capital. • Bernd Liebmann, Partner, Wide range of international experience and industry knowledge from various countries.

  4. Financial Performance

  5. Financial Position

  6. Canadian Contract Bid & Result • Delivery & Installation: MIS & LAN system • Acceptance of Canadian contract bid on May 15, 1995: C$2,900,000

  7. Winning the Canadian Contract • Single contract equivalent to almost 78% of its entire sales in 1994 • 10% of the price, C$290,000 wired on May 16 • Performance Bond Required: .75% of outstanding contract value • 90% of the price, C$2,610,000 to be received in 90 days

  8. Canada’s Macroeconomic

  9. C$/US$ Exchange Rate Fluctuation

  10. Issues Identified • Subject to transaction exposure due to fluctuation of Canadian Dollar exchange rate: Spot Rate used in Bid • Intends to “go international”, in the long run, operation exposure is identified as another issue

  11. Issues Identified • Sales and net income decreased dramatically in 1993 and 1994: Increasing net income and sales is top priority • TCAS must decide how to finance the project given the large initial outlay expenditure and poor financial performance

  12. Need For $1 Million Financing . Performance Bond Labor Need for 90 Day Finance Installation Purchase Materials

  13. Issues Identified

  14. Alternatives

  15. Selection Criteria

  16. Evaluation of Alternatives – Risk Mitigation * However, the risk of mark to market during the contract period makes the option risky

  17. Evaluation of Alternatives – Risk Mitigation

  18. Evaluation of Alternatives – Risk Mitigation

  19. Evaluation of Alternatives - Cost

  20. Evaluation of Alternatives - Cost

  21. Evaluation of Alternatives – Ease of Implementation

  22. Evaluation of Alternatives - Summary

  23. Evaluation of Alternatives - Summary • TCAS should have purchased a put-option at the time of their original bid on March 21, 1995 • TCAS was fortunate the Canadian dollar appreciated from 1.4096 to 1.3594 • TCAS immediate need is to mitigate their risk – now that the contract has been awarded.

  24. Evaluation of Alternatives - Summary • Forward contract & forward currency loan: Best options based on risk criterion • Note: High cost eliminates currency loan option • Forward contract excels in ease of implementation criteria

  25. Selection of Optimal Alternative . Easy to Implement Low Cost Selection of Forward Contract Hedging Instrument Low Risk Profit Margin Known

  26. Action Plan • May 16, enter into a forward contract with Ms. Wright’s bank • May 16, secure third party performance bond • Over next 90 days borrow $1 million to finance contractual obligation shortfall • Fulfill the contract & collect remaining balance

  27. Questions?