Dozier Industries Harvard Case Solution & Analysis

Dozier Industries Case Study Solution

Introduction

Dozier Industries was a fresh company in the electronic security systems. It was founded by Charles L. Dozier who owned 78% of the shares, and remaining 22% was owned by the other members of management. The company has rapid growth in systems security segment in the market.The company’s sales were much supported by giving its focus to military equipment segment and large corporations.

The future prospectus was a concern for the company as competition in the market also increased which impacted negatively on the sales of the company, and affected the revenues, and net profit.The company tried to boost up its declining sales so it started targeting small firms, and households. Unfortunately, it failed so the company again focused on its primary target market which consists of large corporations, and military equipment systems.

Meanwhile, company wanted to go international given the demand in the international market for its products.The company had made sales contract with an international importer. The money was about to be received after 90 days of the sales. As a deal confirmed between two parties the concern for Richards Rothschild the chief financial officer of Dozier increased because the exchange rates were fluctuating frequently in these days before payment receipts. Therefore, it was the main concern for the CFO to get out of this situation with some financial strategic approach.

  1. Exactly what is Mr. Rothschild's exposure? If the price of the pound falls from its current price of $1.4480, will Rothschild win or lose?

The exposure of Mr. Rothschild is that the company should receive around more than a million pounds in 90 days after the completion of the project with a firm in United Kingdom.The company has to install security system for the company in United Kingdom.The company had received the security deposit so that the transaction proceeds swiftly.

On the other hand, Rothschild is exposed to the threat of declining value of pound against US dollar. This could be a huge loss to the company.The value of dollar against pound is $1.4480. So, it can be determined that a change into the value of pound would have negative affect on the exchange rate. Currently 1 pound is equal to 1.4480 dollars, and when exchange rate would decline the value of pound would also decline thus company would receive less dollars than it has anticipated or calculated. Similarly, the decline in the value of pound would have negative impact on the receivables of the company. So, Rothschild would lose.

 

Dozier Industries Harvard Case Solution & Analysis

 

The value of the pound against dollar on 13 January was around 1.448. Since there were many fluctuations into the exchange rate market due to some market conditions that could not be controlled at all but these risks could be hedged somehow to some extent. Certainly, the company has to receive the money from United Kingdom at the exchange rate that is currently prevailing in the market. So, if the exchange rate declines the company would also bear loss in value of pound result in receiving less dollars in United States.

However, if the value of pound increases against the dollar then company would be in profit, and would gain good return. So, it can be determined that current spot rate of dollar against a pound is 1.437 and it is lower than the rate of yesterday. So, it is assumed that company would be in the position of having loss. For example, if the spot rate is1.448 then company would receive $1.58 million, and if the spot rate is 1.437 then company would receive $1.52 million.

Current spot rate is 1.437 against pound, so company would get $1.52 million instead of 1.58 million, company has a loss of $60000. So, there is huge risk for the company that it has hedged with any of the tools, and financial strategic approaches..............

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