FN7226 Managing resources in the international business environment
Assessment Report
Knowledge
1. Make informed strategic choices based on an understanding of the financial and economic environment and of key institutions within it
2. Determine the likely impact of changes in financial and economic circumstances on organisations and industries with which they are associated
Thinking skills
3. Appraise the financial performance and standing of a business or business unit
4. Determine the likely impact of changes in financial and economic circumstances on organisations and industries with which they are associated
Subject-based practical skills
5. Critique and contribute to project appraisal decisions
6. Assess the appropriate means whereby international businesses can raise and manage financial resources
Skills for life and work (general skills)
7. Make informed contributions to policy debates within their industry or sector.
8. Communicate effectively on financial and economic matters to both expert and non-expert audiences
Question
You are International Business Manager at a UK based company. Your company has identified USA and Europe as potential markets and wish to expand asap and plans afull-scaleexpansion. You are requested to analyse both projects and advise.
In considering such large project, you must work out the risk of each project, cost of capital (Hint: you can use prevailing interest rates and inflation in each region to base your calculation) and calculate NPV. Allocate discount rate for each project according to current international business climate and justify why you allocated the discount rate for each region. Discuss how you aim to manage international risks.
Projected cash flows in respective currencies:
|
Year
|
Net Cash Flow - USA USD
|
Net Cash Flow -EuropeEUR
|
|
0
|
-20 million
|
-20 million
|
|
1
|
2 million
|
2 million
|
|
2
|
4 million
|
3 million
|
|
3
|
5 million
|
 4 million
|
|
4
|
6 million
|
8 million
|
|
5
|
8 million
|
8 million
|
Task:
a. Briefly discuss viability of both projects in today's global business context. Based on your discussion allocate and justify discount rate for both projects.
b. How much investment (GBP)is needed for each project and what is the NPV of each project? Use spot and forward exchange rates to discuss.
c. Considering current world economic climate, the future exchange rates are uncertain. How would you analyse/anticipate the change in exchange rates? Write a brief proposal to mitigate impact of possible exchange rate fluctuations
d. Discuss your calculations and advise which project should be selected.