Ariel Davalli is the VP of Gelato Natural SA, a company which (at the time of the case) was selling Chungo (it's high-quality homemade ice cream) from several locations in the northern suburbs of Buenos Aires, Argentina. Based on high demand for its products from individual consumers living in the northern suburbs, the company invested $2,000,000 US dollars to significantly increase the capacity of its factory. This $2,000,000 expansion was funded by borrowing $750,000 US dollars (the loan comes due in four years) and by shifting the local-currency equivalent of $1,250,000 of working capital into fixed assets. Unfortunately, just as the expanded factory started production, the economic environment in Argentina deteriorated significantly. In addition, the exchange rate of the peso with the US dollar fell from 1-to-1 (at the time of the loan) to 3-to-1. Currently, demand for Chungo is stagnating, and the new factory is operating at only 30% of capacity.
GELATO NATURAL S.A
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