MB701 International Management of Finance

 Assignment Sample MB701 International Management of Finance

Introduction

As part of the investment decision-making process, an investment evaluation is conducted to support the sponsor’s and governance board’s decision to invest in the aforementioned project, program, or portfolio. When a project is allocated a finite amount of resources, an investment analysis explains why. When making an investment choice, one must evaluate the budget, the return on investment, and the portfolio effect.

Accurate benefit attribution is critical for project and programmer investment evaluation and business case creation. Frequently, investment evaluations are accompanied by a narrative describing how the money will be used to meet both qualitative and quantitative goals. Conducting an investment evaluation is normal practice, in which the trade-off between total costs, benefits, and deployment risks is examined. The time needed to complete a task varies significantly. Additionally, the time necessary to realize a project’s benefits varies considerably (Röhrich, 2019). http://MB701 International Management of FinanceMB701 International Management of Finance Considers the time value of money if the project will endure a lengthy period of time.

 

The firm produces and distributes construction materials in the domestic market to large businesses and individuals. Due to rising competition in both domestic and international markets, it is critical to reassess the company’s market position. The UK hardware industry’s 2020 relaxation of international competition prohibitions will enhance competition from Europe, India, and China. As a consequence, the supply of high-quality construction materials from the EU, India, and China has increased significantly. For the first time in the company’s history, both the stock price and profitability have fallen. Suppose the company does not make exceptional efforts to redefine itself as the hardware industry leader after a 50% decrease in sales over the last six months. In that case, gross profit is likely to continue to decline dramatically. This article will explore many ways for investment assessment.

Investment appraisal methods NPV

When considering investment prospects, Multi-Hardware Plc may use the following strategies: NPV

The organization creates products and services using present and future resources to produce money. To create wealth, cash intake must be greater than cash outflow. The net present value of capital investment is determined using a discount rate (for example, the company’s weighted average cost of capital).

 

The initial investment must be subtracted from the discounted net cash flows over time in order to determine the return on investment. It might be extended if the initiative is a success. If the results are unfavorable, the project will be unable to proceed since it will not be financially viable. The practice of estimating the present value of a financial asset by multiplying its cash flows by a number of different factors is known as “discounting.”

 

This is by far the most popular method of investing. The net present value (NPV) of a project is the total of all future cash inflows and outflows during the project’s lifetime (NPV). In the net current value method, WACC is often employed as a discounting factor for future cash flows to account for the risk associated with future cash flows (WACC). To calculate an investment’s “Net Present Value,” subtract the original investment from discounted net cash flows. Prioritize initiatives that provide a positive Net Present Value (NPV) for the company (Broomhead et al. 2021).http://MB701 International Management of Finance

IRR 

In capital investment evaluations, a discount rate based on the internal rate of return (IRR) is used to create a discount rate that is used to balance current costs and expected future cash flows. Consequently, the expected net cash flows are worth precisely the amount of money that was initially invested in them, according to the rate of return. When referring to the net present value, it is common to hear the word “zero” (NPV). Calculating the internal rate of return (IRR) requires the use of personal discounting rates or accounting rates, which are sometimes referred to as bank loan rates and opportunity costs of money to invest, respectively. A project’s internal rate of return (96 percent) is compared to the lowest permissible rate of return in order to establish whether or not the project is financially feasible (96). As a percentage, the internal rate of return (IRR) is expressed by the following formula:

When the PV of cash inflow matches the PV of cash outflow, the difference between the two is equal to zero. When the PV of cash inflow matches the PV of cash outflow, the difference between the two is equal to zero.

 

By using trial and error, you must first determine the discount rate at which total cash inflows equal unrestricted cash outflows before you can compute the internal rate of return (internal rate of return). Internal rate of return (also known as internal rate return) (also known internal rate return)

 

If the cash flow is uncertain, it is required to compute the internal rate of return (IRR) by trial and error (Throsby, 2016).http://MB701 International Management of Finance By estimating the “factor,” it is possible to get a rough estimate of the discounted rate. The payback factor, which is included in the payback calculation, indicates the obvious link between investment and cash inflows.

Payback period

A project’s “payback period” is the length of time it takes for incoming cash to equal outgoing cash after it has been completed. The phrase “payback period” is widely used to refer to the time it takes for incoming cash to equal outgoing cash after a project has been completed. In contrast to other methodologies, this strategy analyses the monetary return on a project’s original investment in monetary terms. Following the conclusion of the project’s payback period, a cash flow balance will be generated to determine the project’s financial health.

In order to calculate the recovery period, the sum of all cash inflows (including depreciation) during the course of a calendar year is added together. A project’s ‘payback time’ must be determined first, and this step must be completed before any other. It is possible to estimate how long it will take to repay the investment’s initial cost and make a return on the investment by looking at the years it has been in operation.

Companies must focus their efforts on projects that provide the most value for the least amount of money, given their limited financial resources. However similar the projects are, it is normal practice, to begin with, the one that will provide the largest return on investment, regardless of how similar they are to one another.

 

Payback is a screening strategy that is often utilized during the early phases of a project. This indicator, which is beneficial in estimating liquidity and profitability, may be used to evaluate liquidity and profitability (Baum et al., 2021). http://MB701 International Management of FinanceThis method, when utilized as a first pass screening strategy, is straightforward to learn and put into effect. By using this process, it is able to take into consideration the original investment placed into a project.

Investment decision

A comprehensive analysis of all of the available investment options is required in order to make the best investment decision possible. In light of the fact that labor costs in India are just a third of those in the United Kingdom, moving production there would be a cost-effective approach for businesses of all kinds. This will allow businesses in India to sell their products both locally and internationally, as well as to businesses in other countries. Increased earnings have resulted from lower selling costs and more access to international markets, as well as the United Kingdom market, and the firm has retained its competitive position while boosting profits.

Methods for investment protection

Multi-Hardware Plc may opt to use one or more of the following techniques in order to safeguard its investment: Hedging ETFs (exchange-traded funds) are financial vehicles that may be used to purchase and sell currencies on a global scale (ETF). An exchange-traded fund (ETF) is a kind of mutual fund that invests in a wide portfolio of assets or investments, some of which may be denominated in a foreign currency and therefore susceptible to fluctuations in the value of the foreign currency.

 

Such funds include, for example, those that strive to create returns that are inverse to the daily performance of the euro (NYSEArca: EUFX1), which seek to generate returns that are inverse to the daily performance of the euro. This means that if the EUR/USD exchange rate changes, the fund moves in the opposite direction of the rate movement. It is possible that investing in a fund like this would assist to reduce the exposure of a portfolio to fluctuations in the euro’s value. For example, in the instance of the Pros Hares Short Euro Fund, the currency risk associated with the underlying asset would be nearly completely removed from the equation (Pozzi et al., 2015).http://MB701 International Management of Finance A considerable amount of the ETF’s long and short exposures to the euro must be equal and matched one to one before an investor may make a large amount of money.

By investing in a diverse portfolio of currencies, exchange-traded funds (ETFs) that specialize in long or short currency exposure seek to replicate the real-time performance of the currencies they watch. However, because of the method in which the funds are constructed, actual performance may fluctuate dramatically from forecasted performance. As a result, the risk associated with currency changes isn’t totally excluded from the equation. Furthermore, with an average expense ratio of 1 percent, currency-based exchange-traded funds (ETFs) may be too expensive for certain investors.

Forward contract

For those who want to reduce their exposure to currency risk in the near term, currency-forward contracts are another possibility. The phrase “forward contract” refers to a financial transaction in which a corporation and an outside entity agree to purchase or sell currency at a particular exchange rate and at a certain date in the future for a fixed price at a specified time in the future. If the settlement date in both nations falls on a business day in the respective countries of origin, the amount and term of a forward contract may be adjusted (Eliasson et al., 2019).http://MB701 International Management of Finance

A portfolio’s exposure to currency swings may be hedged by using forward contracts, which allow an investor to lock in a set exchange rate for a specific foreign currency at a given time. If the consumer wishes to conduct these sorts of transactions, the currency broker will often need a deposit from the customer. A currency contract specifies that defined amounts of a currency will be acquired or sold at preset prices and exchange rates at a future date, according to the terms and conditions of the contract. Whenever possible, a transaction should be completed as soon as possible while the exchange rate is favorable rather than waiting until the next day when it is not favorable. Their ability to produce more accurate sales and revenue estimates will be enhanced in the long term, and the more solid their business strategy is. Also conceivable is the establishment of a price plan that is both competitive and cost-effective at the same time, if necessary (Azeez, 2019).http://MB701 International Management of Finance

Currency option

Exchange-rate options allow you to benefit from higher exchange rates by acquiring a certain amount of currency at a later time. There is a contract in place between the corporation and its bank. Depending on how the money moves in their favor, it’s conceivable that you’ll spend all of their money to secure the contract and won’t be able to use it afterward.

‘In both cases, their bank will want a firm to give collateral,’ Turi adds. Withdrawing operational cash has a substantial impact on their capacity to satisfy the terms of their international commitments. It’s possible that some of the operational money retained by Canadian exporters as a hedge against foreign currency risk will be made available for discharge if the EDC’s Foreign Currency Facility Guarantee (FXG) is effective.

 

FXG “allows enterprises to avoid posting collateral as a payment guarantee for foreign currency transactions, enabling their money to be utilized for other reasons,” according to Turi of the European Development Bank. Businesses will be better positioned to compete on a global stage as a result of this.

However, even when a “strike price” has been established, an investor is under no obligation to acquire or sell a particular currency at that price in the future (called the expiration date). The investor is required to engage in the transaction when his or her forward contract expires, as opposed to when he or she purchases an option to do so. A one-time fee must be paid in order to benefit from the increased flexibility that has been made available (Okolelova et al., 2018).http://MB701 International Management of Finance

Implications

  • Companies are always on the lookout for new and cost-effective methods to provide higher-quality items at cheaper rates in order to maintain their competitive edge. One method of lowering labor expenses is to move manufacturing jobs abroad to nations where wages are lower than those in the United States. When enterprises in the United Kingdom desire to extend their operations into other countries, they must consider ethical considerations as well as financial considerations. It is probable that those who choose to relocate their manufacturing activities to India would suffer the consequences listed below.

 

 

The consideration of ethical and social factors while exporting industrial employment is critical for management, even if doing so results in immediate financial benefits for the organization. Working conditions in other nations are often more difficult than those found in the United States under a variety of scenarios. Working long hours in dangerous and unclean environments with insufficient safety procedures in place to protect themselves and their colleagues is a common occurrence. Because of this, the Occupational Safety and Health Administration (OSHA) has been working to establish regulations that encourage safe and healthy workplaces since its founding in 1970. It has been over 40 years since OSHA was established, yet the number of deaths and injuries at work has dropped significantly. This is mostly due to the efforts of the agency’s workers’ compensation program. Failure to comply with OSHA laws results in the imposition of a fine, which is inconvenient (Danquah, 2021).http://MB701 International Management of Finance

  • The rules of global competitiveness do not apply equally to all enterprises, nor do they apply uniformly to all sectors, as the following examples demonstrate. Consider the instance of a corrupt politician or a high-ranking CEO from a worldwide organization that you wish to bring down. This is an illustration of what you can accomplish. As an example, bribery and kickbacks are extensively practiced and expected in a number of Latin American countries, including Brazil, according to the World Economic Forum. It is illegal in the United States to bribe foreign authorities in return for economic advantages and privileges. Firms with headquarters or operations in the United States are also prohibited from participating in this practice, as is the practice in other nations. Businesses in other affluent countries are not permitted to take bribes in the United States since the United States does not accept bribes themselves. Bribes given to foreign authorities are considered a business cost in Germany, therefore they may be deducted from your tax return as a business expense (Zarzecki et al., 2020).http://MB701 International Management of Finance

 

  • When it comes to accepting presents, the majority of Indian businesses adhere to codified norms, which are universally acknowledged as normal practice in the country. Having managers in other nations establish laws that are applicable around the world would be good. Realistically speaking, this is not possible due to cultural differences and widely recognized customs that exist throughout different countries. Attempting to draw broad generalizations about all countries at the same time may prove to be quite difficult. When it comes to gift-giving, it is permissible in many cultures, but it may be deemed immoral in others, depending on the situation in which it is carried out. In some European nations, including Canada, the practice of accepting a gift is considered odd or even taboo. It is possible to make a huge impact on the attitude of a German coworker when you give him or her a meaningful gift that is thoughtful (Chrysafis et al., 2020).http://MB701 International Management of Finance
  • According to the United Nations Children’s Fund (UNICEF), children under the age of majority are working excessive hours and in potentially hazardous environments all across the globe, according to the organization. As a result of their origins in impoverished nations, they are compelled to labor in order to support themselves and their families. Niger, Bangladesh, Pakistan, and India are the countries that have experienced the most significant number of atrocities done against their own populations. As a result, large garment factories are among the most well-known employers of child labor in the world. This is because children are often more efficient than adults at completing many of the activities that take place across the supply chain. Large garment factories are among the most well-known employers of child labor in the world, and they employ a large number of children. In spite of the fact that many firms utilize child labour as a result of financial incentives, many corporations assert that their international suppliers and subcontractors do not use children in their commercial operations. Retailers put pressure on their suppliers to keep prices low and delivery times short in order to be able to compete with them on the open market. The suppliers use this as an excuse to force the youngsters to work long hours for little or no compensation as a form of punishment.
  • Appalling working circumstances exist for people of all ages, and this is not only an issue for the old or disabled workers. Several factors distinguish many foreign nations from the United Kingdom, including the fact that people’s rights to organize, participate in collective bargaining, strike, and negotiate for greater wages and working conditions are severely limited in many countries (Pawlak et al., 2020). http://MB701 International Management of Finance Employee dissatisfaction with potentially hazardous working circumstances is consequently prohibited in many of these countries, restricting the ability of workers to express their dissatisfaction with their employers. International firms are faced with the tough problem of complying with the labor laws of their home nations while simultaneously acknowledging that equal rights do not exist in the countries in which they operate, which is a challenging undertaking. According to the Guiding Principles on Economic and Human Rights, which were developed by the United Nations to offer universal standards for human rights in business activity, the United Nations was responsible for the formulation of these principles.

Conclusion

Major domestic organizations and individuals purchase and use this company’s high-quality building supplies. In order to stay competitive, the company’s top management must review the company’s market position as local and global rivalry heats up. In 2020, the removal of restrictions on international competition, particularly from Europe, India, and China, is likely to increase competitiveness in the UK hardware industry. This has resulted in a shift in building materials from the EU, India, and China, respectively, to low-cost, high-quality resources. The company’s stock price and profitability have both dropped for the first time. If the firm does not rebuild itself as an industry leader in hardware after a 50% loss in sales in the preceding six months, gross profit is likely to plummet even more. The strategies used to decide the most effective way to invest your money. Indian labor expenses are a third of what they are in the United Kingdom. As a result, both locally and globally, India’s commodities will be sold. As a consequence, sales costs have lowered, and access to the UK and worldwide markets has increased.

References

Röhrich, M., 2019. Fundamentals of investment appraisal. De Gruyter Oldenbourg. https://www.degruyter.com/document/doi/10.1524/9783110347197/html

Broomhead, S.C., Mars, M., Scott, R.E. and Jones, T., 2021. EHealth Investment Appraisal in Africa: A Scoping Review. INQUIRY: The Journal of Health Care Organization, Provision, and Financing, 58, p.00469580211059999. https://journals.sagepub.com/doi/abs/10.1177/00469580211059999

Throsby, D., 2016. Investment in urban heritage conservation in developing countries: Concepts, methods and data. City, Culture and Society, 7(2), pp.81-86. https://www.sciencedirect.com/science/article/pii/S1877916615300060

Baum, A.E., Crosby, N. and Devaney, S., 2021. Property investment appraisal. John Wiley & Sons. https://books.google.co.in/books?hl=en&lr=&id=4-ASEAAAQBAJ&oi=fnd&pg=PP1&dq=Baum,+A.E.,+Crosby,+N.+and+Devaney,+S.,+2021.+Property+investment+appraisal.+John+Wiley+%26+Sons.+&ots=GLVB0kl2bK&sig=vRFcIEKOBthBZxjnmj3q_Ds1x8I

Pozzi, R., Noè, C., Lazzarotti, V. and Rossi, T., 2015. I am using simulation for reliable investment appraisal: evidence from a case study. International journal of operational research, 23(1), pp.45-62. https://www.inderscienceonline.com/doi/abs/10.1504/IJOR.2015.068743

Eliasson, J. and Börjesson, M., 2019. On timetable assumptions in railway investment appraisal. Transport Policy, 36, pp.118-126. https://www.sciencedirect.com/science/article/pii/S0967070X14001875

Azeez, W., 2014. Capital Investment Appraisal in Retail Business Management: Sainsbury’s as a Case Study. Available at SSRN 2392288https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2392288

Okolelova, E., Shibaeva, M. and Trukhina, N., 2018. Model of investment appraisal of high-rise construction with an account of cost of land resources. In E3S Web of Conferences (Vol. 33, p. 03014). EDP Sciences. https://www.e3s-conferences.org/articles/e3sconf/abs/2018/08/e3sconf_hrc2018_03014/e3sconf_hrc2018_03014.html

Danquah, B., 2021. Determinants of Choice of Appraisal Methods for Investment Appraisal by Firms in Ghana: A Study of Selected Firms, in Kumasi. Kumasi (july 27, 2021)https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3994928

Zarzecki, D. and Pawlak, M., 2020. Investment appraisal practice in the European Union countries. https://www.um.edu.mt/library/oar/handle/123456789/78785

Chrysafis, K.A. and Papadopoulos, B.K., 2020. Decision making for project appraisal in uncertain environments: A fuzzy-possibilistic approach of the expanded NPV method. Symmetry, 13(1), p.27.

Pawlak, M., Rapacewicz, A. and Zarzecki, D., 2020. Investment appraisal practice in the biggest companies in Poland.

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