International Financial Management

International Financial Management
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Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Question 1........................................................................................................................................3
Question 2........................................................................................................................................5
Question 3......................................................................................................................................10
Conclusion.....................................................................................................................................14
References......................................................................................................................................16
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INTRODUCTION
In every enterprise, financial management practice is significant process. This is
t mechanism of preparing, arranging, managing, and reporting financial capital in attempt to
meet the aims and priorities of an entity That's a superior practice for managing an entity 's
financial functions, like fund acquisition, fund allocation, billing, transfers, risk evaluation, and
everything else involving capital. Simply financial management is structured application of
common managerial concepts to an organization's financial assets. Quality gasoline and routine
service are provided by proper financial management in order for a company's operations to run
smoothly. If a company's budgets aren't handled adequately, it can face roadblocks that might
stifle its progress and developments (Ameliawati and Setiyani, 2018).
Typically, companies have a specialized division that handles the enterprise 's financial
affairs. A financial officer is responsible for overseeing an organization's finances and services.
This place is where all financial decisions are made. Dependent on the organization 's
background the finance division might have multiple designations to meet the corporation's
different requirements. The study report comprises three different tasks that covers numerical
tasks based on given information. In first question, expected NPV and standard deviation of NPV
has been computed while in second and third question, NPVs based on different scenarios has
been computed to support decision making,
MAIN BODY
Question 1
a. The expected NPV:
Expected NPV is an investment appraisal strategy that accounts for volatility by measuring net-
present values in various conditions as well as weighting to arrive at most possible NPV. So
rather than depending on single NPV, businesses calculate NPVs for a variety of cases, such as
the base point, worst scenario, and best situation measure the likelihood of each situations
outcome, and measure the NPVs measured as per their respective chances to arrive at the
estimated NPV (Atmadja and Saputra, 2018). Since it acknowledges the complexity involved in
predicting future outcomes, anticipated NPV is more effective interpolation than standard NPV.
The NPV approach is a technique for determining a project's feasibility. This takes time worth of
capital into account. The valuation of potential cash flows would be lower than value of
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present cash flows. As result, the greater the cash balance, the lower the valuation. This is a
critical factor that should be taken into account when using the NPV form. Both inflows,
all outflows, time frame, and vulnerability are factored into net present value measurement. As a
result, NPV is a thorough framework that takes into account all facets of an investment (Brigham
and Ehrhardt, 2016).
Year 1 Year 2
Returns Probabili-
ties
Expected
returns Returns Probabili-
ties
Ex-
pected
returns
£ 8000 0.1 £ 800 £ 4000 0.3 £ 1200
£ 10000 0.6 £ 6000 £ 8000 0.7 £ 5600
£ 12000 0.3 £ 3600
Total expected return = £ 10,400 Total expected return = £ 6,800
Periods Expected
Returns
Discounting factor @11% NPV
Year 0 £ -15,000 1 £ -15,000
Year 1 £ 10,400 0.9009 £ 9,369
Year 2 £ 6,800 0.8116 £ 5,519
Expected NPV £ - 112
As assessed in above table, Expected NPV result is negative figure which indicates that
project is not so viable for enterprise.
b. The standard deviation of NPV:
It is conceptual methodology based on probability distribution approach, in
which probability of event occurring is multiplied by cash-inflows to produce expected
cashflows, which represent those possible cash inflows and afterwards NPV is determined.
Standard deviation value is determined using estimated net-cash flows to assess the likelihood of
cash-inflows differing through one investment to another. The potential variance of results
around the predicted value is used to calculate risk (Chang, McAleer and Wong, 2020). When
two schemes have same estimated value, capital spending decision would be made with the
difference in expected value in mind. The project with the lowest predicted value variance would
be chosen by decision maker. If lifespan of project and overall cash outflows of two projects are
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