Assignment for International Finance for Business

Running head: INTERNATIONAL FINANCE FOR BUSINESS
INTERNATIONAL FINANCE FOR BUSINESS
Name of Student
Name of University
Author’s Note

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EXECUTIVE SUMMARY:
This report discusses about Hatfield Manufacturing Systems plc decision to invest in the
project of opening a manufacturing factory in Turkey. To analyses the decision of
Hatfield Manufacturing Systems plc net present value, internal rate of return and
weighted average cost of capital are to be calculated. The impact of foreign exchange
rate in the business is also being calculated.

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Table of Contents
BACKGROUND OF THE FIRM:.............................................................................3
ADVANTAGE OF CREATING A PLANT IN TURKEY:..........................................3
INVESTMENT PROPOSALS:................................................................................4
Net Present Value Method:.................................................................................4
Internal Rate of Return Method:..........................................................................5
Weighted Average Cost of Capital:.....................................................................6
IMPACT OF FOREIGN EXCHANGE RATE:..........................................................7
Supplier Payments:.............................................................................................7
Hedging:..............................................................................................................7
CONCLUSION AND RECOMMENDATION:..........................................................7

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BACKGROUND OF THE FIRM:
Hatfield Manufacturing Systems plc. is the company who has its business in
United Kingdom. The company basically manufactures 3D printer. The company is the
supplier to other aerospace and motor vehicle industries. The company wants to open a
manufacturing firm in Turkey. The creation of the manufacturing demands the company
to investigate about the investment plan that will assist the management of the company
to decide whether to invest or not. Investment in a project in different country also
demands to enquire about the internal and external factors of the country because it can
affect the company’s plan for establishing a manufacturing firm in that country.
ADVANTAGE OF CREATING A PLANT IN TURKEY:
As per the case study it can be identified that the investment factor of the country
is pretty strong in comparison other countries around the world. The multinational
companies have serious help from the Turkish Government. As the government of
Turkey are very keen to invest in the multinational companies. The government also
supports the business to expand. The Turkey Government mainly invests in improving
the infrastructure. The improved infrastructure of the company assists the business
develop more and realize profit from the market (Turker and Altuntas 2014). The
improve infrastructure also assists the company to reduce the cost of the company. The
improvement in the infrastructure of the country will led to the improvement of the
communication, transportation, electric system, sewage and water system. The
availability of the above mentioned infrastructure assists the business environment to
improve and expand. The automotive industry of Turkey is also very successful, which
assists the industries to bloom. The country also has one of the best aerospace
industries that indirectly also assists the business in the country to expand.
The country’s workforce mainly comprises of young generation, which also
assists the company to gain some of the talented person. The country’s non-agricultural
growth rate is around 11.4%. The high non-agricultural growth rate means the
companies can avail more people from the country. The GDP growth rate of the country
is also high.

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INVESTMENT PROPOSALS:
Net Present Value Method:
Hatfield Manufacturing Systems plc used the net present value method for
checking whether they should invest in the manufacturing industry in Turkey. The net
present value is that the process where the managers or investors investigate whether
the company should perfuse in the project or not. As per the net present value rule if the
net present value is greater than zero then the company should invest in the project.
According to the net present value process the cash inflow must be greater than the
cash outflow. If the vice versa occurs then it is not feasible to invest in the project. The
managers of the company usually use the capital budgeting and investment planning for
analyzing the profitability of the project or the investment (Simiyu and Ngile 2015).
According to the analysis of net present value of Hatfield Manufacturing Systems
plc the cash inflow and cash outflow has been calculated. As per the analysis the
company’s net present value (in pound) stands at £513538. To analyses the cash flow
of the company the discounted cash flow has been calculated. As per the analysis it can
be determined that the company’s discounted cash flow in the beginning stated as
£11,000,000 and after 10 years it stands at £12215607.97. To get actual cash flow the
total cash inflow of the company are being deducted from total cash outflow of the
company. After analyzing the actual cash flow of the company it can be determined that
the net present value of the company stands positive.
To calculate the net present value of Hatfield Manufacturing Systems plc, the
time period used is 10 years. The discounted cash flow for ten years has also been
analysed for getting the net present value of the company. The periodic rate of the
company has been analysed using the weighted average cost of capital ( Kayabasi and
Mtetwa 2016). The net present value of the company is being calculated based on the
actual cash flow of the company.
A positive net present value states that the company’s projected earnings from
the investments in the new projects will fetch more in respect to the costs that the
company needs to invest for the project. The high projected earnings of the project and
low costs indicate that the company will gain profit from the market. When the net

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present value of any project provide positive result then the company should consider
the investment. The net present value of the project of opening a manufacturing firm in
Turkey provides positive value and hence it will benefit the company financially.
In spite of the many advantages of the net present value, there are some
disadvantages that prove that the net present value method is not sufficient enough.
The main basic drawbacks of net present value method are that the management of the
company has to rely mainly on the assumptions and estimates (Stark 2015). The net
present value method does not consider the unforeseen costs that may arise during the
project. The net present value method is also a cumbersome process in comparison to
the payback period method and internal rate of return method.
Internal Rate of Return Method:
Internal Rate of Return method is the type of method that assists the company to
estimate whether the company should invest in the project or not. It is very similar to net
present value method. The internal rate of return also relies on the same process as the
net present value method relies on. To measure the internal rate of return the formula
needs to set at zero. This will enable the company to search for the discount rate.
Unlike net present value of the company internal rate of return of the company needs to
be calculated using the trial and error method. Internal Rate of Return is also known as
economic rate of return or discounted cash flow rate of return.
The internal rate of return assists the company to analyses whether the company
should invest in the project or not. The higher the internal rate of return of the project it
proves more profitable for company. The main use of the internal rate of return occurs
when the project requires multiple perspectives (Uyar and Kuzey 2014). Among many
projects whichever projects shows higher internal rate of return will be more acceptable
for the company.
In spite of various advantages of the internal rate of return in selecting the project
of the companies, the internal rate of return tends to overstate the profitability of the
specific projects, which directly affects the investment decisions of the company.
Internal rate of return of the company mainly estimates the cash low of the company but

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the cash flows are not sometimes realistic all time. The internal rate of return of Hatfield
Manufacturing industries stands at 0.723%. This states that the company needs to
invest in the project as the percentage of the internal rate of return shows that the
project is acceptable.
The internal rate of return is used mainly when the company holds projects that
have different periods of cash flows that might be positive or negative cash flow. As per
the the internal rate of return method more than one number are being produced that
creates confusion among the management of the company. Internal rate of return also
assumes that growth rate remain constant. Thus, it overstates the future value of
internal rate of return figures (Ararat, Black and Yurtoglu 2014).
Weighted Average Cost of Capital:
The weighted average cost of capital is the type of capital that analyses the
company’s cost of capital. As per this method all the category of the cost of capital are
being weighted individually. The cost of capital of the company mainly includes common
stock, bonds and other long-term debt of the company.
The calculation of the weighted average cost of capital considers the market
value of the company’s shares, market value of the company’s debt, cost of equity, and
cost of debt and also considers the corporate tax of the company. The weighted
average cost of capital changes when the beta and return on equity changes. The
increase in weighted average cost of capital states that the valuation of the shares has
decreased and the risk increases by considerable means.
As per the analysis of the weighted average cost of capital of Hatfield
Manufacturing Systems plc, the weighted average cost of capital of the company stands
at 11.48%. This indicates that the company’s financial position is in moderate stage.
This means that the valuation of the shares of the company may increase, but the risks
regarding the financial performance of the company’s shares and the cost are under the
radar. As per the analysis it can be determined that the return on equity of the company
stands at 5.09% (Buğra and Savaşkan 2014). The cost of debt of the company stands
at 20.50%. The total cost of capital stands at 915650. As per the analysis it can be

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stated that the management of the company needs to look after the risk that are
associated with the projects. The project may be profitable for the company but some
risks still prevails. The reason behind such can be traced to the external problems that
are associated with Turkey. The man problem that can be identified is the country’s
ongoing civil war. The country does not have good relation with many countries around
the world. The country’s negotiations with the European Nation have been in hold in
recent, which will directly affect the country’s economy in future.
IMPACT OF FOREIGN EXCHANGE RATE:
The foreign exchange rate affects the business in many ways like it has
considerable amount of effects on the transactional, transitional, liquidity and credit
risks. The main impacts of the transactions risk can be seen in the business
environment. The main impact of the foreign exchange risks are as follows:
Supplier Payments:
The payment made to the supplier of the company in the foreign exchange rate
makes a huge difference. As mentioned in the case study, Hatfield Manufacturing
Systems plc wants to setup a factory in Turkey. This means that the company needs to
deal with the suppliers around the world. When the multinational supplier gets involves
then the company has to pay up the dues, which mostly happens in foreign currency. It
is the time when the foreign exchange rate comes into play.
Hedging:
The strategy of using the foreign exchange rate can fetch certain amount of
money for the company. To use the foreign exchange rate wisely the management of
the company often uses hedging (Yener, Doğruoğlu and Ergun 2014). This hedging
enables the company to fetch profit from the market. Thus, to gain profit from the market
the companies needs to invest properly. As in the case of Hatfield Manufacturing
Systems plc the management needs to be concern with the foreign exchange rate. The
company may not face many problems regarding this as the value of pound in the
market is high in comparison to liara.

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CONCLUSION AND RECOMMENDATION:
As per the above discussion it can be concluded that the company can invest in
the project without any issues as the net present value result and internal rate of return
result are all positive. Weighted average cost of capital result states that the company
invests in the project in Turkey, but the risk of facing financial loss may arise due to the
foreign and internal affairs of Turkey. Thus, the management needs to consider the
internal and external affairs of Turkey before entering into any kind of deal. The
management of the company should also consider the foreign exchange rate as it will
play a crucial role if the company becomes adamant to invest in the industry.

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REFERENCING:
Turker, D. and Altuntas, C., 2014. Sustainable supply chain management in the fast
fashion industry: An analysis of corporate reports. European Management
Journal, 32(5), pp.837-849.
Simiyu, C.N. and Ngile, L., 2015. Effect of macroeconomic variables on profitability of
commercial banks listed in the Nairobi securities exchange. International Journal of
Economics, Commerce and Management, 3(4), pp.1-16.
Kayabasi, A. and Mtetwa, T., 2016. Impact of marketing effectiveness and capabilities,
and export market orientation on export performance: Evidence from Turkey. European
Business Review, 28(5), pp.532-559.
Stark, J., 2015. Product lifecycle management. In Product lifecycle management
(Volume 1) (pp. 1-29). Springer, Cham.
Uyar, A. and Kuzey, C., 2014. Determinants of corporate cash holdings: evidence from
the emerging market of Turkey. Applied Economics, 46(9), pp.1035-1048.
Ararat, M., Black, B.S. and Yurtoglu, B.B., 2014. Corporate governance, business
groups, and market value: time-series evidence from Turkey. Northwestern Law & Econ
Research Paper, (13-19).
Buğra, A. and Savaşkan, O., 2014. New capitalism in Turkey: The relationship between
politics, religion and business. Edward Elgar Publishing.
Yener, M., Doğruoğlu, B. and Ergun, S., 2014. Challenges of Internationalization for
SMEs and Overcoming these Challenges: A case study from Turkey. Procedia-Social
and Behavioral Sciences, 150, pp.2-11.

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