International Finance and Decision Making

The assessment evaluates the overall proposal presented by the Purchase Manager of Morden Engineering. It identifies the factors and important issues that need to be taken into account while doing financial analysis and provides recommendations with financial appraisal for detecting the decision that needs to be made by Morden Engineering.

Running head: INTERNATIONAL FINANCE AND DECISION MAKING
International Finance and Decision Making
Name of the Student:
Name of the University:
Authors Note:

INTERNATIONAL FINANCE AND DECISION MAKING
1
Table of Contents
Introduction:...............................................................................................................................2
i. Evaluating the arguments utilized by the purchasing and the production managers to
support their cases:.....................................................................................................................2
ii. Identifying the factors and important issues that need to be taken into account while doing
financial analysis:.......................................................................................................................5
iii. Providing recommendation with the financial appraisal for detecting the decision that
needs to be made by Morden Engineering:................................................................................7
iv. Identifying the possible risk of adopting the recommendations, while portraying the
alternatives that can be considered by Morden Engineering:..................................................10
Conclusion:..............................................................................................................................12
Reference and Bibliography:....................................................................................................13

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Introduction:
The assessment mainly evaluates the overall Proposal that has been presented by the
Purchase Manager of the organization. The Purchase Manager has directly highlighted that
the organization can purchase the products instead of making it, as it will generate higher the
revenue for the organization. The Purchase Manager has highlighted that the cost that is in
code in producing the products would be reduced, when the company switches to purchase in
the product from other company. This would eventually help in supporting higher levels of
revenue, as it will reduce the expenses of the manufacturing process. Adequate Factors and
issues that need to be taken into consideration are directly highlighted in the assessment.
Moreover, adequate recommendation has been provided with financial appraisal techniques
to identify the appropriate method that can be used by a Morden Engineering. Relevant
analysis has been conducted on the remarks of Purchase Manager and Production Manager
for identifying the benefits that can be presented to the organization.
i. Evaluating the arguments utilized by the purchasing and the production managers to
support their cases:
The study directly provides information regarding the arguments that has been
presented by the purchasing and production managers. Therefore, from the analysis of the
arguments presented by the Purchase Manager, it could be identified that the organization can
benefit from switching to buying phase from the manufacturing phase. The purchasing
manager of the organization who has highlighted the attractive offer of increasing the profits
by £96,000 each year has provided adequate analysis. The purchasing manager has directly
indicated that coaching the parts would eventually help the organization to reduce its overall
cost of sales, which would eventually boost the gross profit and net profit. The new
technology that has been developed by the competitive manufacturer has allowed them to

INTERNATIONAL FINANCE AND DECISION MAKING
3
reduce the cost of production, which eventually would allow the organization to acquire the
product at 83 pence per unit. On the other hand, the manufacturing cost of the parts has been
calculated to be at the levels of 90 pence. There is a direct benefit of 7 pence, if the
organization switches from manufacturing to buying parts for sale. This benefit would allow
the organization to claim higher revenues and net income over the period of time (Gotze,
Northcott and Schuster 2016).
On the other hand, the production manager provides all the relevant information
regarding the manufacturing process of the organization, which will be halted if purchase is
chosen above manufacturing. The production manager has directly indicated that the machine
is relatively new weight loss of £35,000 will be incurred by the organization if the machine is
sold within one year, as the machine is made to support a specific manufacturing process and
would have no market value. Therefore, the organization will only be able to acquire £5,000
after selling the new machine, which will increase the relevant laws for the organization. The
production manager also highlights that there is only savings of £7,000 every year if the
organizations, which is to buying rather than manufacturing the parts for sale. Moreover, the
manager also highlights that the cost benefit that is produced from purchasing is only
calculated up to 12%, which is not near the estimated cost of capital of the organization.
Thus, the production manager directly indicates that the organization should not adapt to
buying the parts for sale instead, it should continue the manufacturing process (Harris 2017).
There were relevant loopholes in the proposal of the production manager, where no
adequate information has been provided all the future performance of the organization. The
production manager has only highlighted one aspect of the manufacturing process from
which the benefit will be generated by the organization, if the manufacturing process is
discontinued. However, other benefits can be incurred when selecting the Purchase option in
contrary to manufacturing. Therefore, the proposal by the production manager does not

INTERNATIONAL FINANCE AND DECISION MAKING
4
provide adequate information regarding the benefits that could be provided from the
manufacturing process. Furthermore, after analyzing the production managers proposal
relevant limitation has been highlighted, which indicates that choosing the manufacturing
process for the organization will not be beneficial. Moreover, the benefits that has been
proposed by the production manager has directly depicted the Additional benefits that can be
generated by the organization after selecting purchase process in contrary to the
manufacturing process (Bader, Al-Nawaiseh and Nawaiseh 2018).
After analyzing, the proposal of Purchase Manager relevant benefits that could be
generated by the organization has been identified. These benefits would eventually allow the
organization to improve its profitability in the long run and increases cash Reserves. The
Purchase Manager has directly provided information regarding the overall benefits and
income that could be generated by using for cheese option for the parts. Moreover, the
additional benefits highlighted by production manager would also be added to the benefits of
purchase in contrary to production of parts. Moreover, the additional cost of machinery has
also been highlighted that needs to be accommodated into the benefits produced by the
Purchase option for the organization. Moreover, expenses on warehousing and working
capital, as adequate inventory needs to be maintained by the organization throughout the
year. This maintenance of high inventory was not needed in manufacturing process, where
the batch purchasing process would eventually increase the inventory stock of the
organization (Brisley et al. 2016). However, the proposal for purchasing the path is more
reliable as the company will generate higher revenues while reducing if expenses and
exceeding the level of income from sales.

INTERNATIONAL FINANCE AND DECISION MAKING
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ii. Identifying the factors and important issues that need to be taken into account while
doing financial analysis:
The relevant issues and factors that need to be addressed by the organization while
conducting adequate financial analysis of a project. The financial analysis is relatively
conducted on the basis of the presumption and assumptions that has been conducted by the
managers. the assumptions made by the organization needs to be accurate while making
analyzing certain project, as it might directly have negative impact on its performance in the
long run (Alkaraan 2016). There are certain issues and factors that need to be addressed by
the organization while conducting capital budgeting process, which are depicted as follows.
Reliability of the estimated cash flow:
The organization needs to identify whether the estimated cash flows that have been
presented by the managers are relatively reliable or an assumption that is made. This analysis
would eventually allow the organization to determine the concrete proof of the benefits that
could be generated from the particular project. This would eventually allow the organization
to identify the financial benefits that could be presented by the project and segregate any kind
of manipulation or exaggeration that might be conducted by the managers while presenting
the proposal (Awojobi and Jenkins 2016).
Significance of the assumptions:
The assumptions that is taken by the managers while presenting the project proposal
needs to be evaluated by the organization during the financial analysis. This evaluation can
directly identify the level of improvements and incomes that could be generated from the new
project, while disclosing any kind of limitations or hindrance that might negatively affect the
current financial position of the organization. The analysis of the assumptions would
eventually allow the organization to understand whether the manager has adequately

INTERNATIONAL FINANCE AND DECISION MAKING
6
conducted the research before presenting the proposed project. This analysis of the
assumptions would also highlight whether the project is a viable option for the organization,
which can generate higher returns in the long run (Jorge-Calderon 2016).
Inflation rate:
Inflation rate information needs to be taken into consideration by the organization
while evaluating the financial performance of the project. Inflation rate directly Erode future
benefits that can be generated by a project. Hence, the organization needs to conduct
adequate financial analysis on the benefits that will be generated by the proposed project with
the inflation rate. This comparison of the inflation rate with the future incomes would
eventually help the organization to determine the actual time value of the investment. This
would eventually allow the organization to make adequate investment decisions on the
project, which could raise the level of revenues in the long run and increase firm value.
Identifying the qualitative factors:
The organization also needs to identify the qualitative factors that is affecting the
proposed project, which would eventually help in detecting whether the project would have a
positive impact on its performance. The qualitative factors could be the legal cost,
competition and other factors that might negatively affect the organization if the project is
adopted. Moreover, the analysis would eventually help in identifying whether the proposed
project is suitable for the organization. Furthermore, relevant limitations of the project can be
identified from the qualitative factors, which would help the organization with adequate
investment decision (Sims, Powell and Vidgen 2015).
Ethical issue:
The ethical issue also needs to be evaluated by the organization before considering the
project for investment purposes. The investment appraisal technique that has been used on the

INTERNATIONAL FINANCE AND DECISION MAKING
7
analysis of the project is a relatively based on the information that is provided by the manager
regarding the future prospects of the investment. Therefore, the ethical consideration needs to
be provided by the manager for analyzing the benefits that could be generated from the
project. This addicted vehicle consideration would eventually allow the organization to
validate the findings that is been provided by the project manager before accepting the
proposal (Kengatharan and Nurullah 2018).
Detecting the impact of short-term incentive on long-term decision:
The relevant analysis needs to be conducted by the organization for detecting the
impact of short-term incentives on the long-term decisions. This analysis would eventually
help in determining whether the proposed project would have would only benefit the
organization for short term, while entering the future continuity of the company. This
analysis would relatively help in determining whether the proposed project would continue to
provide benefits to the organization even in short term and long term. Therefore, the company
would eventually detect whether the proposed project is a viable investment option that can
generate profits and improve the long-term prospect of the organization (Schlegel, Frank and
Britzelmaier 2016).
iii. Providing recommendation with the financial appraisal for detecting the decision
that needs to be made by Morden Engineering:
Year 1 2 3 4 5 6 7 8
Benefit
£
96,000.
00
£
96,000.
00
£
96,000.
00
£
96,000.
00
£
96,000.
00
£
96,000.
00
£
96,000.
00
£
96,000.
00
machine
operator
-£
8,000.0
0
-£
8,000.0
0
-£
8,000.0
0
-£
8,000.0
0
-£
8,000.0
0
-£
8,000.0
0
-£
8,000.0
0
-£
8,000.0
0
Total
savings
£
7,000.0
0
£
7,000.0
0
£
7,000.0
0
£
7,000.0
0
£
7,000.0
0
£
7,000.0
0
£
7,000.0
0
£
7,000.0
0
New -£ £ £ £ £ £ £ £

INTERNATIONAL FINANCE AND DECISION MAKING
8
machine
cost
8,000.0
0 - - - - - - -
Loss on
machine
-£
35,000.
00
£
-
£
-
£
-
£
-
£
-
£
-
£
-
Warehouse
upgrade
£
-
£
-
£
-
-£
50,000.
00
£
-
£
-
£
-
£
-
Depreciatio
n
-£
2,000.0
0
-£
2,000.0
0
-£
2,000.0
0
-£
2,000.0
0
PBT
£
52,000.
00
£
95,000.
00
£
95,000.
00
£
45,000.
00
£
93,000.
00
£
93,000.
00
£
93,000.
00
£
93,000.
00
Tax
£
13,000.
00
£
23,750.
00
£
23,750.
00
£
11,250.
00
£
23,250.
00
£
23,250.
00
£
23,250.
00
£
23,250.
00
PAT
£
39,000.
00
£
71,250.
00
£
71,250.
00
£
33,750.
00
£
69,750.
00
£
69,750.
00
£
69,750.
00
£
69,750.
00
Inventory
capital
-£
12,450.
00
-£
12,450.
00
-£
12,450.
00
-£
12,450.
00
-£
12,450.
00
-£
12,450.
00
-£
12,450.
00
-£
12,450.
00
Cash flow
£
26,550.
00
£
58,800.
00
£
58,800.
00
£
21,300.
00
£
59,300.
00
£
59,300.
00
£
59,300.
00
£
59,300.
00
NPV £ 1,81,289.72
The above table provide relevant information regarding the NPV financial appraisal
that has been conducted for analysing the performance of the new proposal. The analysis has
directly indicated a positive attribute of the proposed method that could generate high level of
income from operations. The further evaluation has indicated a positive NPV value of £
1,81,289.72, which can generate high level of income for Morden Engineering. The financial
appraisal has been conducted on the data that is provided by both the production manager and
purchase manager. The proposal of purchase manager for switching the manufacturing of
parts to purchase is considered to be adequate, as higher income will be generated by
reducing the actual expense of the organisation. this increment in the profits and reduction in
the costing would also allow the organisation to increase its competitive edge in the market

INTERNATIONAL FINANCE AND DECISION MAKING
9
and generate high level of income from investment. for investments. Abdel-Kader, Dugdale
and Taylor (2018) mentioned hat with the help of investment appraisals techniques the time
value of money is detected, which allow the organisation to detect the most viable investment
option that can increase its profitability in the long run.
The calculations have been provided on the benefits, and expenses that has been
incurred, while making relevant change in the current financial performance. The relevant
income of the project has been accounted under the time value of money, which can
eventually help in detecting the actual income that will be generated from the change in the
operations of the organisation. This change in the operations can eventually help in
determining the level of extra income that can be generated from the new scheme. However,
certain expenses have also been involved in the calculation such as the sale of the new
machine in loss, purchase of new machine for packaging, expansion of the warehouse, and
increment in the salary of the operator. Therefore, the This evaluation has been conducted by
the company for determining the level of income that can be generated from the investment
over the time. However, certain benefits and income that will be generated from the
operations is also incurred in the calculation, which has mainly allowed the organisation to
acquire positive cash flow from operations.
Thus, it could be understood that the proposal made by the purchase manager for
purchasing the parts for sale is viable. In addition, the viability of the proposal is also
supported by the financial analysis and investment appraisal, which indicated a positive
income for the organisation. The company will eventually raise the level of income from
operations if they switch from the traditional manufacturing process to purchasing process.
This move will eventually help the organisation to substantially reduce its cost over time and
improve the level of income that can be generated from operations. Hence, the use of
purchasing method can allow Morden Engineering to generate high level of income, while

INTERNATIONAL FINANCE AND DECISION MAKING
10
reducing the expenditure, which is currently being incurred in the manufacturing process
(Elmassri, Harris and Carter 2016).
iv. Identifying the possible risk of adopting the recommendations, while portraying the
alternatives that can be considered by Morden Engineering:
The recommendation provided to Morden Engineering directly indicates that the
organisation can improve its revenue generation capability by reducing the total cost incurred
in its manufacturing process. However, there are certain risk involved in the
recommendation, which can hamper the operations of the organisation in the long run. These
risks are not evaluated on the financial perspective rather from qualitative viewpoint, as the
organisation will face problems from competition. The purchase manager of Morden
engineering has collected a price quotation from the competitor, who has improved the
manufacturing process and reduced the actual cost of making the parts. The risk from rising
competition can be a major concern for the organisation, as the purchase will be conducted
from the competitor. Therefore, accepting the recommendation can reduce the competitive
edge of the organisation, where it will have to fully rely on the competitor for providing the
products for its sales.
This is a major concern for the organisation, which can reduce its competitive edge in
the market and hamper its financial growth. Babatunde (2016) mentioned that the company
can increase their current financial performance by reducing the level of risk involved in its
operations. Hence, the major anticipation of the proposal made by the purchasing manager is
the reduction on cost, which will allow the organisation to increase its profits. However, no
anticipation has been conducted for detecting problems that might increase from the
competitors. There is relevantly high risk involved in discounting the manufacturing process,
as it will make the organisation dependent on its competitors for the parts.

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However, certain alternative can be adopted by the organisation instead of the
recommendations that is been provided by the purchasing manager. The improvements in the
current manufacturing process can be conducted by the organisation for reducing the level of
cost involved in producing the parts for sale. The competitors have used new technology for
improving the production level and reduce the cost involved in operations. The same method
or technology can be can be used by Morden Engendering for improving the level income
production reduce the actual cost of production. This reduction in cost would eventually help
in organisation to improve its competitive edge in the market and reduce any kind of risk
involved in investment. Furthermore, the organisation can use the zero-budgeting method for
controlling the relevant cost involved in the manufacturing process. This method can help in
determining the different level of expenses, which has been incurred by the company to
complete its production process. The zero-budgeting method will substantially reduce the
excessive expenses incurred by the company, which in turn can raise its profitability and
competitive edge. In addition, the adopting of new technology can be evaluated on the basis
of the investment appraisal technique for determining the accurate level of income that can be
generated from an operation (Pivoriene 2017).
Therefore, the alternative method can be used by the organisation for maintaining the
manufacturing process and reduce the actual cost involved in operations. This would allow
Morden Engineering to reduce the level of expenses, which can be generated from
operations. The organisation can eventually improve its current financial performance by
reading the level of expenses incurred in the production process. However, the alternative
method can increase the expense and investment of the organisation, as it will raise their
competition level in the market. The overall performance of the organisation can eventually
improve over the period when choosing the alternative option. The increment in

INTERNATIONAL FINANCE AND DECISION MAKING
12
manufacturing process can eventually help in detecting the level of income that can be
generated from the operations.
Conclusion:
The assessment has been evaluated on the basis of investment appraisal technique for
analysing the performance of the organisation. In addition, the financial performance of the
project can be conducted for determining the level of income that can be generated from
operations. Moreover, the financial analysis has been conducted on the proposal made by
both purchase manager and production manager for detecting the accurate level of benefits
that might be generated from the operations. The improvements in the current operations can
be conducted for determining the level of income, which can be generated from the
operations. The relevant evaluation has also been conducted for detecting the accurate level
of investment process, which can be increase profitability of the company. The analysis has
mainly helped in detecting the accurate level of income, which can generate high level of
income from operations. Moreover, the risk involved in recommendation is also highlighted,
which can help in determining the problems that might incur in their operations. The relevant
analysis on the alternative measure can be used by the organisation for raising the level of
income and reducing the implications of the risk. Thus, under the financial analysis the
overall recommendation can increase profitability of the organisation in the long run, while
raising its performance and income.

INTERNATIONAL FINANCE AND DECISION MAKING
13
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