International Financial Business Management: Evaluation of Financial Techniques for Decision Making

This article discusses the evaluation of financial techniques for decision making in international financial business management. It covers topics such as capital budgeting, net present value, payback period, internal rate of return, and factors influencing decision making. The article also provides case studies and examples to illustrate the application of these techniques.

International Financial
Business Management

TABLE OF CONTENT
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
Question 1....................................................................................................................................3
Question 2....................................................................................................................................5
Question 3....................................................................................................................................6
CONCLUSION ...............................................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUCTION
International financial management is the management of finance in an internation
business environment which helps the business to make money through the exchanges of foreign
currency. In this project for the given scenarios relevant theoretical framework and models will
be applied for the international business. It will provide the business with evaluation and
application of various methods and techniques related to the financing of the business
organization. It will utilize different capital budgeting techniques for advising organization.
MAIN BODY
Question 1
Year
Cash
outflow for
outsourcing
PV factor
@ 16%
Discounted
cash out
flows
Cash
outflow for
in house
production
PV factor
@ 16%
Discounted
cash out
flows
0 70000
1 100000
0.86206896
55
86206.8965
517241 80000
0.86206896
55
68965.5172
413793
2 110000
0.74316290
13
81747.9191
438764 82000
0.74316290
13
60939.3579
072533
3 121000
0.64065767
35
77519.5784
985034 84000
0.64065767
35
53815.2445
774735
4 133100
0.55229109
79
73509.9451
278912 86000
0.55229109
79
47497.0344
177208
5 146410
0.47611301
54
69707.7065
867934 88000
0.47611301
54
41897.9453
564498
Total
discounted
388692.045 273115.099

cash flow 908789 500277
initial
investment - 136000
Net
discounted
cash flow
388692.045
9 409115.1
From the evaluation it can be identified that the specified organization will required to
incur £388692.0459 in case it outsource the widgets. In case of in-house production the
organization is required to incur net value of £409115.0995 for widget. From comparing both
the option it can be interpreted that in case of outsourcing from the suppliers firm required to
incur less expenses as compared to in-house production. From the net present value of capital
appraisal technique it can be identified that Curt Plc is should make the decision in favour of
taking widgets from suppliers in order to decline related cost.
Other factors influencing decision making
There are various factors which influences the decision making procedure of
organization. Factors that affect the decision making procedure involves aspects that strategies,
policies, objectives, availability of funds, etc. there are certain crucial impact of it on business
as it contributes in hindering or boosting position of firm in industry. Firm require to evaluate
that particular decision is capable of accomplishing mission, vision and goals. Availability of
funds helps in identifying that company is capable of maintaining and accomplishing
objectives of firm (Putra, 2019). It becomes essential to pay on such internal factors that can
affect decision making procedure. The most important aspect is employees acceptance towards
the selected project as they are the one who need to work on it. It should evaluate that skills ,
attributes, knowledge so that it can be assured that processing and continuing of project is
possible or not. In order to have smooth processing of organization plans of expansion via
appraising capital it becomes essential to give higher emphasis on prevailing legal policies and
plans. Adherence with industrial legislation, rules and regulation provides aid in ensuring that
organization is performing ethically. In addition to this, decision making procedure highly get
influenced from both internal and external factors.

External elements like political, social, technological , legal and environmental need to
be analysed for having proper decision. These factors need to be identified and checked as it
largely influence decision making procedure. Changing trends of taste and preferences impact
sales and demand of market. It is required to give deeper emphasis in market situations which
keeps on changing so need to evaluate before taking any decision. Cultural views, opinions, etc
need to be highlighted for avoiding any irrelevant aspect which can occur in absence of
adherence (Aldowah, Al-Samarraie and Alalwan, 2020). Before taking any significant
decision it becomes crucial fro the firm to pay attention that competitors are offering which
important features that can help in gaining competitiveness so that leading position in industry
can be obtained. Other factors that need to be taken into practice by entity before taking
decision which involves economic factors like inflation, interest, etc rate that can majorly
affect the business growth and profitability. In order to attain higher profitability and
sustainability it become important for the company to take these elements into consideration for
making appropriate evaluation.
To take strategic decision it becomes significant for the firm to concentrate on this
aspects so that overall evaluation can be exerted. Having proper knowledge helps in gaining
competitiveness through taking strategic decision.
Question 2
In the given scenario the business of Clipper which owns 100 acers of woodland has been
harvesting trees. Immediately after harvesting the net cash flow it generated by paying the
loggers has been £10,000. In the upcoming years the Clipper get higher cash inflows however
the cost of cutting the trees remains the same. In the first two years the cash inflow increases by
£2000 at first but then started to decrease in the third year and then decreases to just £1,000 per
annum. With the help of the following table the best time of cutting the trees can be calculated.
Year Cash inflows NPV rate @10% NPV
0 10000 1 10000
1 12000 0.909 10909
2 14000 0.826 11570
3 15500 0.751 11645
4 16500 0.683 11270

From the above evaluation it can be noticed that the net present value of cutting down the
trees increased at first till the third year but then it started to decrease. As the business of the
Clipper allows it to only generate income only once by cutting of the trees it will be best for the
Clipper to cut them off when they are of the most value. In the third year the calculated NPV is
£11645. This is the highest NPV out of all the years and as the trend in the NPV is falling for the
Clipper it will be the best option for its business to cut off the trees in the 3rd year.
Question 3
Hose plc that has made an investment in the project of £800,000 with a life of seven years
is expected to generate £150,000 per annum which due to the rate of given inflation of 6% will
increase yearly. However, due to the money rate of return is 13%. From the following
information and some capital budgeting methods the viability of the will be advised as follows,
Payback Period:
Particulars Figures (in £) Figures (in £)
Initial Investment 800000
Year Cash Inflows
Cumulative cash
inflows
1 150000 150000
2 159000 309000
3 168540 477540
4 178652.40 656192.40
5 189371.54 845563.94
6 200733.84 1046297.78
7 212777.87 1259075.65
Payback period
4 + (800000 -
656192.40) /
189371.54
= 4.76 years

Payback period shows the amount of time it will take the business to recover its initial
investment (Badawi and et.al., 2019). This project of Hose plc will take 4.76 years to generate
enough cash inflow to be able to recover the total amount invested. For improving this business
increasing its revenue will be helpful for recovering its investment faster.
NPV :
Year
Cash Inflows (in
£)
NPV Rate
@13% PV of cash flows (in £)
1 150000 0.8849557522 132743.362831858
2 159000 0.7831466834 124520.322656434
3 168540 0.6930501623 116806.674350283
4 178652.4 0.6133187277 109570.862664867
5 189371.544 0.542759936 102783.287101557
6 200733.83664 0.4803185274 96416.1808209294
7 212777.8668384 0.4250606437 90443.4970532612
Total Discounted Cash
Inflows Total PV 773284.19
Less: Initial Investment 800000
NPV -26715.81
NPV is the difference between the present value of cash inflow and the cash out flow
over the given time period which shows the profitability of the project (Kashyap, 2017). In the
given scenario the NPV that has been calculated is negative which shows that the project has not
turned out to be profitable. Hose plc should try to increase revenue in order to be profitable for
which it can utilize different marketing strategies.
ARR:
Initial Investment 800000

Year Cash Inflows
1 150000
2 159000
3 168540
4 178652
5 189372
6 200734
7 212778
Average earning after tax 179868
Average Investment 400000
ARR 179868 / 179868
= 44.97%
Average Recurring Revenue which has been calculated at 56% it shows that Hose plc can
expect 56% as the recurring revenue on the yearly basis. Although it shows the health of the
project it should be important of the business to try to achieve high ARR with increasing its sales
(Campbell, 2021).
IRR :
IRR
Initial investment 800000
Year Cash inflows
0 -800000
1 150000
2 159000
3 168540
4 178652.40
5 189371.54

6 200733.84
7 212777.87
IRR 11.98%
Internal rate of return to the following is 11.98% which is shows how much the investor
should expect from the business (Hayat and et.al.,2017). For the Hose plc it can be advised that if
the expectancy of the project is higher that the calculated IRR it is going to be profitable were as
if its lower than the business might suffer losses.
CONCLUSION
With the help of the following project different organization scenarios in respective of
their own issues are advised with consideration of financial techniques. This project has utilized
different capital budgeting methods for the calculation of the factor which influence the decision-
making of the business in the given scenarios. It provided decisions related to the business for
the viability of their operations. It helps the business of internation financial management to
choose the correct option generating the highest revenue.

REFERENCES
Books and Journals
Aldowah, H., Al-Samarraie, H. nd Alalwan, N., 2020. Factors affecting student dropout in
MOOCs: A cause and effect decision‐making model. Journal of Computing in Higher
Education. 32(2). pp.429-454.
Badawi, A. S., and et.al., 2019. Practical electrical energy production to solve the shortage in
electricity in palestine and pay back period. International Journal of Electrical and
Computer Engineering.
Hayat, M., and et.al.,2017, April. Comparison of the economic benefits and the payback periods
of rooftop solar panels in Australia. In 2017 3rd International Conference on Power
Generation Systems and Renewable Energy Technologies (PGSRET) (pp. 113-117).
IEEE.
Kashyap, R., 2017. Fighting Uncertainty with Uncertainty: Time Value of Knowledge and the
Net Present Value (NPV) of Knowledge Machines. Available at SSRN 3038567.
Putra, Y. M., 2019. Analysis of Factors Affecting the Interests of SMEs Using Accounting
Applications. Journal of Economics and Business, 2(3), pp.818-826.
Online
Campbell, P., 2021. What is annual recurring revenue. [Online]. Available through:
<https://www.priceintelligently.com/blog/arr>