“Bergen Fashions, Inc.: Outsourcing to Bangladesh” explores ways to evaluate global business risks by looking at a small US fashion company’s decision whether to outsource a new product line to Bangladesh. The key comparison is between a simple risk adjustment to the discount rate, such as increasing a hurdle rate by a sovereign spread, and modeling specific risks by adjusting cash flows and looking at the distribution of resulting net present values. Analysis will illustrate the importance of the timing of cash flows and will also draw attention to how spread adjustments will typically bias decisions against long-term investments. The analysis is not complicated, but instructors may choose to provide an initial discounted-cash-flow analysis of the choices and focus on adjustments to account for risk.

This fictional case manages to get a great deal of mileage out of a rather small fact set. The production issues are fairly simple in this setting, but the risks play out in subtle and related ways. The case is engaging and accessible to wide audiences. It has been used at the University of Virginia Darden School of Business in “International Corporate Finance,” a second-year MBA elective. It would be appropriate for MBA or undergraduate classes. Students would likely need to have had at least one class on currency forecasting in advance of this class.