Evaluating a Proposal to Invest in a New Plant in Turkey

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Student Name
Student Number
Date of Assignment
Course Id
Course Name

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Introduction
The case details about the following aspects: -
- Make the successful trail into permanent status
- Evaluating a proposal to invest in a new plant dedicated to the manufacture of these components to be located in
Turkey
- Turkey Increased Output by 1.75 Million
- Recruitment Level is good as unemployment rate is high
- Government Investment is good as growth rate is 5.5 percent
- Currency trading at TL8.8257/£. – Trading rate as shown in UK and Turkey
- Cost of the new plant = TL 110 M include 3D MACHINE
- 3D Machine = TL 15 M Depreciation = 10 years SLM, Zero – Residual Value
- Sales 2020 Year 1 = TL 15518 K, Growth rate = 12 % each year
- Variable cost - TL 1467 K - 35 PERCENT LABOUR COST, Labour increase 2% every year, other 1 percent every
year.
- Fixed Cost – TL 1144 increase 1 %
- BETA = 1.60
- Tax Rate = 22 % for collaboration applying lower rate 10 %
- UK Tax Rate = 19 %
- Accounting Profit = Tax Profit
- All sales are exported and converted into the TL value

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- HMS plc ordinary shares are trading on the London Stock Exchange at £3.26 whilst their loan stock is trading at
£101.63. During the last year the firm earned profit after tax of £13,470,000.
Analysis
The project has to be evaluated in the position which assures the factor that whether the same is feasible project in
terms with the financial perspective as well as in terms with the foreign risk management and the same is
highlighted into following section analysis.
 Strategies Available - Enable The Creation And Maintenance Of Value
The best way to ensure that project investment has an appropriate level of creation or maintenance value is that to
assure that the first and foremost the collaboration between the two mindset is clear and crisp all terms are set and
managed in a right direction. On the more, it is very necessary that the planning precision must exists, they include
all the possible outcomes on the planning stages as well as the execution stages. It is necessary to understand that
the maintenance can be lead to perfect creation as well as evaluation when the placement of people and job
description is done in a right manner (Feenstra,2015). The professional are correctly assigned and distributed with
the job responsibility. Adding more, it is evident that the performance measurement is done in a rightful manner, on
the more, it is evident that the collaborative process as well as the counsel is correctly managed. Lastly, but most
importantly it is very necessary that the safety culture which assures that the accountability and the awareness is
made well aware to all parties whether being the external parties as well as internal parties. Thus, these strategies
assure a better creation of the project for the Hatfield Manufacturing Systems plc.

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 The Financing Choices Available - Relevance Of Capital Structure
The Capital structure can primarily be divided into two segments which being the owners fund as the borrowed
fund. Looking at the current balance sheet it is evident that the capital employed is mainly divided into two
segments which includes the two segments ordinary shares – equity (78930 / 83930) Pound = 94 percent, the
second segment which being the borrowed fund – ( 5000 / 83930 ) Pound = 6 Percent. This shows that the
company is dominant on the equity parameters and leads to confirm the factor that the company has massive
backing in terms with retained earning and owners fund. However, the collaboration between the both countries
shows that the Turkish is an great opportunity outlet and the government is also ready to provide a great hand of
support and therefore, taking a burden of debt cost is also a viable situation which will lead to same the equity as a
back up. On the more the debt cost burden will be also less and limited, hence at the given condition t is evident
that the weights must be 70 percent and 30 percent. Where the former is the borrowed fund which being the debt
cost and the latter being with equity cost or the owners fund where the benefit is taken from the reserves on the
limited basis. In connection with the debt funds it is majorly distributed on account of borrowing in terms with the
bond yield which carries a cost of about 20 Percent, the other is the loan rate which deals and varies around 5 to 8
percent where as the equity varies of about 7 percent or less, which is tax free rate.
 The Financial And Operating Risks Faced By Organisations And The Strategies For Mitigating These Risks
The major risk on both the financial as well as the operating risk will be on account of the foreign exchange, the
factor will hit by two level one being the cost variations in terms with importing the investment proposal as the cost
will lead to two possibilities loss where the cost will increase and the other being the profit which will eventually lead

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to reduce the cost of the investment. The other element being that the sales which are exported to various
countries which may lead to assure that the loss will lead to lesser profit margins and the higher exchange value
will lead to provide better margins. The only method through which the risk can be minimized is through assuring
that the hedgeing is done correctly like by managing the derivatives or the options or the taken aspects like the call
or put options. On the more, through the Inflation and exchange rate data for Turkey and the UK the UK CPI %
and The Turkey CPI % is increasing showing that the purchasing parity has increased by a larger margin which
being 4.3909 in 2017 from 2.8890 in 2013. Hence, the risk must be accounted and managed in right manner and
right time so that the risk are reduced.
 The Specific Issues Relating Investing And Raising Finance On An International Basis
Considering the collaboration between both the countries it is evident that the specific cost which the manufacturing
company must face is that the international investor may face problems majorly on account of higher transactions costs
which may be in terms with the barrier costing which includes in connection with the tax rates, transaction bank cost ,
customs charges or import and export expenses. The problems will be on account of the fact that the volatility can be high
as the exchange fluctuations is very high and the buying, selling as well as converting the same into different currency can
be difficult and complicated (Viner, 2016). The other factor will be on account of liquidity where the risk in terms with the
investor protection will lead to assure that the problems can work in terms which may create issue problems in terms with
the cash cruch and major losses. Analyse Financial Statements And Interpret The Results In The Context Of Value Creation
Considering the current situation, the company in To 2019 the profit is about pound 20430, after applying the new project
expenses the following aspect is evident

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Year 2020 2021 2022 2023 2024
Profit rate 14.185% 13.937% 13.720% 13.530%
The same shows that more or less that the profit margins share the same aspect which ensures that the level is
appropriately maintained. On the more, the company must increase on account of the financial statements the sales must
be equated in connection with the expenses and the same must be accounted in terms with the interest and also as well
as the investment proposal cost.
In connection with the taking and considering the capital budgeting and the aspect evaluated on the NPV value which
being the Net Present Value by estimating on the five year analysis the Hatfield Manufacturing Systems plc must definitely
consider the project as in both situations whether being the domestic currency or the international currency the same is
showing profits on the more, if being conservative and checking the other features, it is very much evident that the
company is promising a great level of turnover sales which being around increase of 1.75 million tonnes on a regular
basis as well as provides a certain concept which confirms that the demand is confirmed . None the less the growth is
also showing a hike in revenue prices as well as it confirms the identity of the very fact that the expense is not growing on
the same level. Hence, promising a great profit margins and valid capital investments.
 Critically Evaluate Capital Investment Proposals Both Domestic and International Estimations
The same is evident that the capital investment if considered in connection with the Net Present Value in
connection with the capital budgeting it is very much evident that both the aspects produces a positive and a much
promising return value (McGovern, 2018). On the more, being a manufacturing unit, it is evident that the providing
a positive outcome on the domestic returns is a viable and a great option for investment.

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Looking at the level of the investments it clear shows that the capital must be managed in a right ful direction which
may lead to that the budgeting must be done to assure that the both domestic as well as international investments
provides an stable and progressed growth.
Year 2019 2020 2021 2022 2023 2024
In Currency
Value
Net Cash
Flow -11000
9196.636
36
9722.416
49
10227.41
36
10713.83
02
11183.68
82
40043.9
85
Positi
ve
Value Turkey
Per pound
value
8.8257/£
-£
1,246.36
£
1,042.03
£
1,101.60
£
1,158.82
£
1,213.94
£
1,267.17
£4,537.2
0
Positi
ve
Value Pound
 Enhancing Enterprise Value
The enterprise value is managed in connection with the factor that the EBITDA ratio must be managed in a right
manner on the more it is evident that the EV/EBITDA of the company as well as NYSE and the Turkish’s stock
exchange must be equated in a right manner. Further, the company value must be understood in connection with
the market capitalization value and the debt is managed currently. Considering the company financial position, it is
evident that the equity is well balanced and more in abundance as compared to debt and therefore, the company
can manage the whole elements in a collaborate format (Schuknecht, 2017). On the more, the company new
investment proposal will lead to provide an element where the revenues will be increased and the prices will lead to
assure the aspect of the exchange polices. Further, the company lead to provide the trading rate and managing the

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same accordingly will lead to provide an better level of substance and value for the progressive yield analysis. The
other factor which may lead to assure that the enterprise value will be increased is on non financial factor is that the
by taking this business operations and this contract it will lead to provide the benefit in connection with the tax
government and the subsidy which also benefit in building the reputation. Further, the employment will be provided
in this context of such employment . None the less, it will lead to the promote the aspect which will be growth and
better GDP rate and a better returns also by managing the beta value the value will be also enhanced.
Conclusion
Hence, after analyzing the following aspects it is evident that the investment proposal is evident and effect mainly
because, the project meets the financial viability as well as it proves to be great in terms with the foreign risk
management and risk analysis. On the more, it assures that the trail version was a success which mitigated various
errors and operational hiccups proving that the project is successful and eliminating all the hidden costs. Thus, the
whole process is a low risk process which earns major profit margins and future growth. On the more, it
strengthens the overall business growth between the two countries as well as invites a good level of foreign
investments and higher margins on the exports.

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References
Feenstra, R. C. ,2015. Advanced international trade: theory and evidence. Princeton university press.
McGovern, E., 2018. International trade regulation (Vol. 1). Globefield Press.
Schuknecht, L., 2017. Trade protection in the European Community. Routledge.
Viner, J., 2016. Studies in the theory of international trade. Routledge.