Financial Analysis Essay example

1223 Words Aug 9th, 2010 5 Pages
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Brazilian fiscal policy
Fiscal policy refers to use of government revenue collection and expenditure to influence its economy. Fiscal policy targets a country’s budget of its economic activities. Government can adjust its spending and taxation levels through changing the income distribution, resource allocation or level of aggregate demand and economic activity. In the context of Brazil, in 1970s, the government put some stringent penalties to regulate its imports. The government kept the import tax and penalties high. To implement the policies, the government applied tax deduction on imports, for instance, a Brazilian resident who imported intangibles like knowhow, software and royalties would be
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This therefore meant direct cost to Commutronics. The company was advised that the 85% tax was seen as an addition to the import deposits and duties, which was to be offered and allowance of 100% in price. This allowance meant that software had to be supply by Aberdeen to CdB freely or Commutronics had to withdraw. Arguments for the free issue of software were that Commutronics do Brazil initial business dint have enough orders and required to get the contract with Commutronics in order to carry on with business. This was a valuable foothold for CdB since the market for computerized systems of market was growing. Only a few cities had such systems worldwide. The contract would have worked as a demonstration for Aberdeen to indicate that the traffic control system actually worked. Competition for the order was high since the new concept of traffic control was new in the global market (Poterba, 1999).
Q4 Commutronics argument for and against a financial solution
Contract withdrawal entailed redundancies in Rio and Aberdeen and the free issue had no impact on pre-tax results. Any loss in UK would have been offset through CdB’s gain. Against the free issue were several views, cost incurred by UK would not be covered while the parent company, Commutronics required

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