Finance for International Business

Investment appraisal technique can be considered as an adequate measure that allows the organisations to identify the opportunity in an investment, which can eventually help them to improve the returns and generate higher revenue in the process.

Running head: FINANCE FOR INTERNATIONAL BUSINESS
Finance for International Business
Name of the Student:
Name of the University:
Authors Note:

FINANCE FOR INTERNATIONAL BUSINESS 2
Table of Contents
Introduction:..............................................................................................................................3
Analysing the overall net cash flow of the project:.............................................................4
Identifying the overall cash flow that would be generated from the project after the
current conversion:..................................................................................................................8
Net Present Value, Payback Period and ROCE of the Project:.......................................9
Sensitivity Analysis:...............................................................................................................12
Conclusion:.............................................................................................................................15
Reference and Bibliography:...............................................................................................16

FINANCE FOR INTERNATIONAL BUSINESS 3
Introduction:
Investment appraisal technique can be considered as an adequate measure
that allows the organisations to identify the opportunity in an investment, which can
eventually help them to improve the returns and generate higher revenue in the
process. The assessment directly evaluates the project that was proposed to the
management of Organic Farm Foods Plc, which can improve their revenues in the
process. Moreover, the appraisal techniques such as net present value and payback
period has been utilised to detect whether the investment option is viable and could
generate the required rate of return in the process. Furthermore, the required rate of
return on capital employed is also calculated to determine the efficiency of the new
proposed project to improve the returns of Organic Farm Foods Plc.
Additionally, the project is situated with certain restrictions and limitation that
the has been followed to determine the level of changes in the company's overall
income and expenses in the long run. The relevant circumstances have been taken
into consideration to determine the overall of the company. Likewise, the currency
conversion rate has been taken into consideration to determine the level of free cash
flow that will be transferred to United Kingdom from Republic of Ireland. Moreover
adequate sensitivity analysis has been conducted to determine the level of changes
in the value of investment appraisal technique due to the alterations in fixed cost and
currency conversion rate.

FINANCE FOR INTERNATIONAL BUSINESS 4
Analysing the overall net cash flow of the project:
Particulars Value
Sales rate (Incremental) 20.00%
Labor cost rate (Incremental) 3.00%
Variable cost rate (Incremental) 3.00%
Fixed cost rate (Incremental) 2.00%
Tax rate (Ireland) 12.50%
Tax rate (UK) 19.00%
Variable Cost (Total) € 3,95,000.00
Particulars Value
Land for Purchase (Total Acres) 1,000.0000
Per Acre Costs € 8,088.00
Total Investments € 80,88,000.00
Investments (Additional) € 12,10,000.00
Investments (Net) € 92,98,000.00
Beta 1.450
10 Y. Government Bond
(Return) 1.320%
FTSE All Share Index (Return) 5.300%

FINANCE FOR INTERNATIONAL BUSINESS 5
Required Rate of Return 7.091%
Years 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Sales
(Revenue)
€
9,68,00
0.0
€
11,61,6
00.0
€
13,93,9
20.0
€
16,72,7
04.0
€
20,07,2
44.8
€
24,08,6
93.8
€
28,90,4
32.5
€
34,68,519
.0
€
41,62,222.
8
€
49,94,667.
4
Variable
Costs
(Total)
Labor
Costs
€
1,58,00
0.0
€
1,62,74
0.0
€
1,67,62
2.2
€
1,72,65
0.9
€1,77,
830.4
€
1,83,16
5.3
€
1,88,66
0.3
€
1,94,320.
1
€
2,00,149.7
€
2,06,154.2
Other
variable
costs
€
2,37,00
0.0
€
2,44,11
0.0
€
2,51,43
3.3
€
2,58,97
6.3
€2,66,7
45.6
€
2,74,74
8.0
€
2,82,99
0.4
€
2,91,480.
1
€
3,00,224.5
€
3,09,231.2
Fixed Costs
€
1,30,00
0.0
€
1,32,60
0.0
€
1,35,25
2.0
€
1,37,95
7.0
€
1,40,71
6.2
€
1,43,53
0.5
€
1,46,40
1.1
€
1,49,329.
1
€
1,52,315.7
€
1,55,362.0
Depreciation
€
1,21,00
0.0
€
1,21,00
0.0
€
1,21,00
0.0
€
1,21,00
0.0
€
1,21,00
0.0
€
1,21,00
0.0
€
1,21,00
0.0
€
1,21,000.
0
€
1,21,000.0
€
1,21,000.0

FINANCE FOR INTERNATIONAL BUSINESS 6
Total
Expenses
€
6,46,00
0.0
€
6,60,45
0.0
€
6,75,30
7.5
€
6,90,58
4.2
€
7,06,29
2.2
€
7,22,44
3.8
€
7,39,05
1.8
€
7,56,129.
3
€
7,73,689.9
€
7,91,747.4
PBT
€
3,22,00
0.0
€
5,01,15
0.0
€
7,18,61
2.5
€
9,82,11
9.8
€
13,00,9
52.6
€
16,86,2
50.0
€
21,51,3
80.7
€
27,12,389
.7
€
33,88,532.
9
€
42,02,919.
9
Tax
€
40,250.
0
€
62,643.
8
€
89,826.
6
€
1,22,76
5.0
€
1,62,61
9.1
€
2,10,78
1.2
€
2,68,92
2.6
€
3,39,048.
7
€
4,23,566.6
€
5,25,365.0
Net Profit
€
2,81,75
0.0
€
4,38,50
6.3
€
6,28,78
5.9
€
8,59,35
4.8
€
11,38,3
33.6
€
14,75,4
68.7
€
18,82,4
58.1
€
23,73,341
.0
€
29,64,966.
3
€
36,77,554.
9
Depreciation
€
1,21,00
0.0
€
1,21,00
0.0
€
1,21,00
0.0
€
1,21,00
0.0
€
1,21,00
0.0
€
1,21,00
0.0
€
1,21,00
0.0
€
1,21,000.
0
€
1,21,000.0
€
1,21,000.0
Net Cash
flow
€
4,02,75
0.0
€
5,59,50
6.3
€
7,49,78
5.9
€
9,80,35
4.8
€
12,59,3
33.6
€
15,96,4
68.7
€
20,03,4
58.1
€
24,94,341
.0
€
30,85,966.
3
€
37,98,554.
9
The calculation conducted in the above table directly indicates about the overall cash flow of the new project, which could
help in generating high level of income from investment. In addition, the overall sales and revenue of the new project has been

FINANCE FOR INTERNATIONAL BUSINESS 7
depicted in the above table, which is used for determining the free cash flow of the project. Moreover, the overall beta for the
organization, risk free rate of the country and market retune of the stock market is used for determine the cost of capital for the
organization, which is used for analyzing the net present value of the project. Moreover, the net cash flow of the organization has
been calculated on the basis elephant assumptions such as required rate of return, which has been calculated with the help of
Capital Asset pricing formula and is at 7.09%. This cost of capital is relatively been utilized for determining the level of present
value of future cash flows that would be generated from the project. Likewise, the net cash flow of the project is mainly derived by
deducting the relevant cost factors that would affect the overall income of new project. Besides, the overall sales revenue of the
project is detected to increase at the levels of 20% for the period of 9 years after the initial 1st year sales. In the similar instance,
the overall fixed cost and labor cost of the new project will be increased by 2% and 3% over the period of 9 years. The total variable
cost of the project is related derived by adding both the total labor cost and other variable cost incurred by the project. Therefore, it
could be understood that the overall variable cost has increased by the levels of 3% over the period of 9 years. On the other hand,
the fixed cost has increased by 2% in comparison to the values depicted in first year, which has helped in determining the accurate
level of net cash flows from the project (McLean and Zhao 2014).
The net cash flow has also evaluated adequate depreciation values to determine the Irish branch would conduct the level of
tax saving that. The inclusion of depreciation has relatively helped in increasing the level of net cash flows projected by the project
over the period of 10 years. Hence, the cash flows determined after the accommodation of depreciation section assertively help in
determining the overall amount that would be transferred from Ireland to United Kingdom. Shenkar, Luo and Chi (2014) Indicated
that with the help of investment appraisal techniques investors are able to determine the current and actual flow of cash that would
be generated from a project over the period of time.

FINANCE FOR INTERNATIONAL BUSINESS 8
Identifying the overall cash flow that would be generated from the project after
the current conversion:
Years Net Cash flow
Additional Tax @
6.5% Estimated Cash flow
2020 £3,32,851.2 £21,635.3 £3,11,215.9
2021 £4,62,401.9 £30,056.1 £4,32,345.7
2022 £6,19,657.8 £40,277.8 £5,79,380.0
2023 £8,10,210.6 £52,663.7 £7,57,546.9
2024 £10,40,771.5 £67,650.1 £9,73,121.4
2025 £13,19,395.7 £85,760.7 £12,33,634.9
2026 £16,55,750.5 £1,07,623.8 £15,48,126.8
2027 £20,61,438.8 £1,33,993.5 £19,27,445.3
2028 £25,50,385.4 £1,65,775.0 £23,84,610.3
2029 £31,39,301.6 £2,04,054.6 £29,35,247.0
Exchange Rate (£1 = € 1.21) 0.826446281 1.21
The calculations conducted in the above table directly provide information
about the overall net cash flow that has been generated by the overall project after
converting it from euro to pound currency. The net cash flow of the overall project
has been determined in in British Pound to allow the organisation in United Kingdom
to determine the efficiency of the project and its profitability over the period of 10
years. From the relevant calculations, it could be understood that with the help of
currency conversion rate the overall net cash flow of the project is determined and
converted from Euro currency to British Pound currency. Moreover, additional tax of
6.5 % is added to the overall net cash flow of the project. This additional tax rate is
due to the higher tax charge in United Kingdom in comparison to Ireland. The tax
rate in Ireland is at the level of 12.5%, while the tax rate in UK is at 19%, where the
additional tax calculated for the project that needs to be paid in UK is 6.5%.
The additional tax that needs to be paid by the Organic Foods PLC is due to
the higher tax rate of United Kingdom and the Treaty that has been signed between
the European Union (Papadopoulos and Heslop 2014). The treaty relatively helps
and minimising the occurrence of double taxation among the countries such as

FINANCE FOR INTERNATIONAL BUSINESS 9
United Kingdom and Ireland. This is the main reason why the taxation rate of 19% in
United Kingdom has been reduced to the levels of 6.5%, as the overall 12.5% tax
rate has been paid in Ireland, which is not taxed in United Kingdom due to the
presence of double taxation policy. The case study directly provides information
about the exchange rate that converts British Pound to Euro currency, where
adequate calculations have been conducted to derive the inverted values of the
currencies. Hence, the (£1 = € 1.2) is converted into (€1= £0.826446281).This
derivation of the currency conversion rate has relatively helped in determining the
overall value of the euro that has been generated from Ireland in British pounds.
Net Present Value, Payback Period and ROCE of the Project:
Probabilit
y Change in Net cash flow
Normal trading terms 55.0% 0.0%
Favorable trading terms 30.0% 15.0%
Unfavorable trading terms 15.0% -30.0%
Year
202
0 2021 2022
202
3 2024
202
5
202
6
202
7
202
8
202
9
Norm
al
tradin
g
terms
£
3,11
,215
.9
£
4,32,345.7
£
5,79,
380.0
£
7,57
,546
.9
£
9,73,1
21.4
£
12,3
3,63
4.9
£
15,4
8,12
6.8
£
19,2
7,44
5.3
£
23,8
4,61
0.3
£
29,3
5,24
7.0
Favor
able
tradin
g
terms
£
3,57
,898
.3
£
4,97,197.6
£
6,66,
287.0
£
8,71
,178
.9
£
11,19,
089.6
£
14,1
8,68
0.2
£
17,8
0,34
5.8
£
22,1
6,56
2.1
£
27,4
2,30
1.9
£
33,7
5,53
4.1
Unfa
vorab
le
tradin
£
2,17
,851
£
3,02,642.0
£
4,05,
566.0
£
5,30
,282
£
6,81,1
85.0
£
8,63
,544
£
10,8
3,68
£
13,4
9,21
£
16,6
9,22
£
20,5
4,67

FINANCE FOR INTERNATIONAL BUSINESS 10
g
terms .1 .8 .5 8.7 1.7 7.2 2.9
Over
all
estim
ated
cash
flow
£
3,11
,215
.9
£
4,32,345.7
£
5,79,
380.0
£
7,57
,546
.9
£
9,73,1
21.4
£
12,3
3,63
4.9
£
15,4
8,12
6.8
£
19,2
7,44
5.3
£
23,8
4,61
0.3
£
29,3
5,24
7.0
Cum
ulativ
e
Cash
flow
-£
73,7
3,08
1.6
-£
69,40,735.
9
-£
63,61
,355.
8
-£
56,0
3,80
8.9
-£
46,30,
687.5
-£
33,9
7,05
2.6
-£
18,4
8,92
5.8
£
78,5
19.5
£
24,6
3,12
9.8
£
53,9
8,37
6.8
PV
factor
0.93
379 0.87195
0.814
22
0.76
031
0.709
96
0.66
295
0.61
905
0.57
806
0.53
979
0.50
405
Over
all
estim
ated
cash
flow
£
2,90
,608
.8
£
3,76,986.0
£
4,71,
742.1
£
5,75
,967
.0
£
6,90,8
79.2
£
8,17
,840
.9
£
9,58
,375
.5
£
11,1
4,18
7.5
£
12,8
7,18
4.1
£
14,7
9,49
9.8
Net Present Value £ 3,78,973.410
ROCE 1.04932
Payback period 7.95926 years
The calculations conducted in the above table directly provide information of
the overall financial viability of the proposed project. Adequate investment appraisal
techniques have been used for identifying the financial viability of the project such as
net present value, ROCE, and payback period. From the relevant evaluation, it could
be identified that net present value of the project is positive and is at the levels of £
378,973.410.The positive value generated by the overall project directory indicates
the financial viability of the investments that would be conducted by Organic Farm

FINANCE FOR INTERNATIONAL BUSINESS 11
Food PLC in Ireland (Sassen 2017). Furthermore, the calculations are also
conducted on return on capital employed, which is at the levels of 1.04932, which is
relatively adequate for investment purposes. However, Payback Period of the overall
project is at the levels of 7.9 years, which directly violates the requirements that are
needed by the management of Organic Farms Foods PLC.
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
£-
£500,000.0
£1,000,000.0
£1,500,000.0
£2,000,000.0
£2,500,000.0
£3,000,000.0
£3,500,000.0
£4,000,000.0
Cashflows in different scenario
Favourable trading terms Unfavourable trading terms
Overall estimated cash flow
In addition, the above figure provides information about the cash flow
difference in alternative scenarios for the overall project. The calculations conducted
in the above table also provide information about the three different circumstances,
which has been utilised to determine the net cash flow of the company. The three
different probabilities of the cash flows, which are generated from the project such as
normal trading terms, favourable trading terms, and unfavourable trading terms. The
cash flows relatively added to determine the overall estimated cash flow from the
project. This comparatively helps in determining the present value of the overall
estimated cash flow, which is used to detect the current net present value of the
project. Hence, the Evaluation has indicated that the overall investments in the
project will generate organic farms foods PLC adequate returns in the long run.
However, the back Period of the project does not match with the requirements that
were made by the management of organic farm foods PLC. Hence, the calculations
in the above table directly indicate that the project is a viable approach where the
probability of incomes and losses does not mitigate the benefits that could be
generated from the investment proposal (Melvin and Norrbin 2017). Thus, Organic
Farm Foods Plc should accept the proposal despite and non-fulfilment of their
payback period requirements.

FINANCE FOR INTERNATIONAL BUSINESS 12
Sensitivity Analysis:
Sensitivity Analysis for labor cost:
Labor Cost (Sensitivity Analysis)
Fixed cost Payback period
Net Present
Value ROCE
7.959 £3,78,973.410 1.049
3,95,000.000
7.959 £3,78,973.410 1.049
3,98,950.000
7.972 £3,57,912.753 1.047
4,06,850.000
7.996 £3,15,791.439 1.041
4,14,750.000
8.021 £2,73,670.126 1.036
4,22,650.000
8.046 £2,31,548.812 1.030
4,30,550.000
8.071 £1,89,427.499 1.025
4,38,450.000
8.097 £1,47,306.185 1.019
4,46,350.000
8.122 £1,05,184.872 1.014
4,54,250.000
8.148 £63,063.558 1.008
4,62,150.000
8.174 £20,942.245 1.003

FINANCE FOR INTERNATIONAL BUSINESS 13
395000 398950 406850 414750 422650 430550 438450 446350 454250 462150
7.850
7.900
7.950
8.000
8.050
8.100
8.150
8.200
Payback Period
395000 398950 406850 414750 422650 430550 438450 446350 454250 462150
£-
£50,000.000
£100,000.000
£150,000.000
£200,000.000
£250,000.000
£300,000.000
£350,000.000
£400,000.000
Net Present Value
The calculations depicted in the above graph and table directly indicates
about the alterations in fixed cost, which can incur for the relevant project. The
calculation of sensitivity directly indicates the relevant changes in payback period,
net present value, and ROCE of the project with the alterations in the fixed cost.
Therefore, it could be understood that the payback period would increase with
increment in fixed cost and net present value will decrease this is not favorable for
the overall project and reduction in fixed cost is more viable approach for the
investment (Esty 2014). However, the decline in net present value still did not make
it negative, which indicates that the overall alterations in the fixed cost still allows the
Organic Farm Foods Plc to select the project without addressing the payback period
restrictions.
Sensitivity Analysis for currency conversion:

FINANCE FOR INTERNATIONAL BUSINESS 14
Currency Conversion (Sensitivity Analysis)
Currency
conversion value Payback period Net Present Value ROCE
7.959 £3,78,973.410 1.049
1.110 7.959 £4,13,115.158 1.049
1.120 7.959 £4,09,426.630 1.049
1.130 7.959 £4,05,803.386 1.049
1.140 7.959 £4,02,243.707 1.049
1.150 7.959 £3,98,745.935 1.049
1.160 7.959 £3,95,308.470 1.049
1.170 7.959 £3,91,929.766 1.049
1.180 7.959 £3,88,608.327 1.049
1.190 7.959 £3,85,342.711 1.049
1.200 7.959 £3,82,131.521 1.049
1.210 7.959 £3,78,973.410 1.049
1.220 7.959 £3,75,867.070 1.049
1.230 7.959 £3,72,811.240 1.049
1.240 7.959 £3,69,804.698 1.049
1.250 7.959 £3,66,846.261 1.049
1.260 7.959 £3,63,934.782 1.049
1.270 7.959 £3,61,069.154 1.049
1.280 7.959 £3,58,248.301 1.049
1.290 7.959 £3,55,471.183 1.049
1.300 7.959 £3,52,736.789 1.049
1.310 7.959 £3,50,044.142 1.049

FINANCE FOR INTERNATIONAL BUSINESS 15
1.110
1.120
1.130
1.140
1.150
1.160
1.170
1.180
1.190
1.200
1.210
1.220
1.230
1.240
1.250
1.260
1.270
1.280
1.290
1.300
1.310
£300,000.000
£320,000.000
£340,000.000
£360,000.000
£380,000.000
£400,000.000
£420,000.000
Net Present Value
1.11 1.12 1.13 1.14 1.15 1.16 1.17 1.18 1.19 1.2 1.21 1.22 1.23 1.24 1.25 1.26 1.27 1.28 1.29 1.3 1.31
7.959
7.959
7.959
Payback Period
The sensitivity analysis on the overall currency conversion rate is depicted in
the above table and graph, which indicate that there would be no harm conducted if
the overall currency conversion rate increases or decreases for the project.
Therefore, it could be understood that the overall net present value will decline with
the changes in the currency conversion rate while there is no proof regarding the
decline of return on capital employed and payback period during the time. This
mainly indicates that the project is viable for investments and could generate higher
returns for Organic farm food Plc in the long run.
Conclusion:
After evaluating the relevant calculations conducted in the above statement
regarding the proposed project for Organic farm foods PLC, it could be identified that
management should accept the project on the basis of positive values determined by
investment appraisal techniques. From the relevant calculations, it could be identified

FINANCE FOR INTERNATIONAL BUSINESS 16
that the investments in in Ireland would allow organic farm foods to generate high
level of revenues while even if alternative circumstances occur. Hence, the
management should accept the overall proposal for open the business in Ireland and
generate adequate revenues in the process.

FINANCE FOR INTERNATIONAL BUSINESS 17
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