International Financial Management

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This article analyzes the realistic uses of finance sources and their impact on business projects. It includes case studies and calculations in international financial management.

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International Financial
Management
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Contents
Contents...........................................................................................................................................2
Introduction......................................................................................................................................3
MAIN BODY..................................................................................................................................3
Question 1....................................................................................................................................3
Question 2....................................................................................................................................5
Question 3:...................................................................................................................................6
Conclusion.......................................................................................................................................7
REFERENCES................................................................................................................................8
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Introduction
A business corporation's financial management entails a variety of decisions varying from
determining the requirement for financing to arranging towards financing to repaying costs of
obtained funds. This act as managerial decision in which the current financial framework must
be organized, and then numerous opportunities to expand the reach of the company must be
found. This article is about analysing the realistic uses of finance sources as well as their uses in
order to choose the most viable business projects (Madura, 2020). There are three questions in
study. The first issue concerns the choice of whether to fund a resource through in-
house production or from outside vendor. The next issue is regarding rendering decisions
about feasibility of project and deciding whether this should be approved or not based on that
feasibility alternative. The final concern is regarding drawing decisions about viability of project
and deciding whether this should be embraced or not based on such viability alternative.
MAIN BODY
Question 1
Information provided: Managing directors of the Curt Plc has been contemplating the choice of
manufacturing widgets within organization, since it is assumed that they also have
expertise/skills to do that. Furthermore, supplier from with which they deal of buying up until
now is growing prices by 10% yearly, and this rise is anticipated to persist for the next 5 years,
according to the query. To manufacture in-house, the business would need the required machines
and equipment, which will have five-year lifespan and could be scrapped for 10,000
pound at end of that period. To divert technical services manager's focus to this venture, she
would require to abandon other given projects, resulting in net loss amounting 48,000 GBP
from other ventures. A 16 percent discounting rate has been given. The business is now deciding
whether to go ahead with the proposal to manufacture in-house or stick with the previous
arrangements (Shapiro and Hanouna, 2019).
A two-way computation is needed to decide the address the issue of business. One, the
organization must calculate present values of overall payments to be made to suppliers for next 5
years. Secondly, in scenario of in-house production, the organization must determine net present
values of cost to the corporation. Such two scenarios will be evaluated to see which alternative is
the most cost-effective for the business.
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OPTION 1: Payment to supplier
Years Payment (£) Discounting factor Present Value
1 100000 0.862068966 86206.90
2 110000 0.743162901 81747.92
3 121000 0.640657674 77519.58
4 133100 0.552291098 73509.95
5 146410 0.476113015 69707.71
Total PV Cash Outflow = 388692.05
According to the figure above, if the organization opt to pay their supplier under the
previous arrangement, it will have to reimburse 388,692.05 GBP in overall present value.
OPTION 2: In-house manufacturing
Years Cash Outflow Discounting factor Present Value
0 70000 70000
0 48000 48000
1 80000 0.862068966 68965.52
2 82000 0.743162901 60939.36
3 84000 0.640657674 53815.24
4 86000 0.552291098 47497.03
5 88000 0.476113015 41897.95
Total PV Cash Outflow 391115.10
Less: Scrap Value 10000 0.476113015 4761.13
Net Cash Outflow 386353.97
From the above table, it can be seen that had company decided to manufacture the
widgets in-house, it would have a net cash outflow of 386,353.97 GBP.
Decision suggested: Based on the aforementioned two results it is recommended to Curt
Corporation that it should produce in-house because it has a smaller cash outflow. Here, In-house
production has the advantages of being able to be customized for company needs and having the
freedom to change availability because it is done on-site. In the other side, it is often associated
with higher costs as well as lack of professionals. However, as-house manufacturing is less
costly for the organization and company's managing director claims they have specialists needed
to facilitate in-house production, they should have no difficulty establishing in-house production
facilities. In addition to this, following are some of the variables that can have an effect on a
company's financial statements:
Collection of trade receivables:
Fund that would be used to run and expand the company is represented by an accounting records.
As a result, the manager must determine how aged the accounts receivable will be for a given
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time span. Whether it takes more time to receive money than even the accounts receivable
requires in a particular way, the company would be in trouble. As a result, these are demanded
that manager have to keep a close look on it at all times.
Credit terms as well as price adjustments:
Avoid extending reimbursement terms to main customers that are greater than some of those
provided by the distributors. Customers can pay quicker if you give promotional offers, but they
must use this cautiously. They need a delicate balance between delivering efficient percent of
revenue as well as a fixed amount to customers whereas keeping a positive gross margin.
Regulation of credit policies:
A repayment policy ensures that resources are provided when customer need it most, and
therefore must be followed. This includes providing defined discounts, enforcing late payment
penalties, and effect on consumer when payments are way overdue.
Purchases and sales of stock:
Since cash is tied up in available for sale inventory, keeping so many stocks has an influence on
demand. The management to keep control about how much inventory is required and choose
products with a negative return (Suryanto and Komalasari, 2019).
Payments to accounts payable:
For higher revenue inflows for such a particular period, Current Liabilities must meet the same
schedule as credit terms. Payables expenditures must be postponed until they become due (but
not overdue). For only certain business owners, operating expenses may be a daunting challenge.
In another side, the advantages of capital expenditures could be enormous. Management will be
required to allocate that resources into more urgent needs in this manner. In general, receive a
better financial position faster than originally expected in the time frame.
Question 2
Information provided: Clipper holds 100 acres’ area of mature woodland as well as is
pondering when the trees can be harvested. There are instant net cash flows and subsequent
yearly cash flows options available. The cost of capital is being set at 10%. The expected rate of
return for capital budgeting venture is referred to as the cost of capital. In this regard following is
computations for assessing best time to cut trees:
Year Net Cash flow Discounting factor i.e.,
Cost of Capital @ 10% Present Value
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0 10000 10000
1 12000 0.909090909 10909.09
2 14000 0.826446281 11570.25
3 15500 0.751314801 11645.38
4 16500 0.683013455 11269.72
5 17500 0.620921323 10866.12
From the aforementioned table, this could be observed that various cash flows are being
produced for multiple years as well as present values for the various cash flows are being
calculated using costs of capital as specific discounting factor to determine highest sum
that Clipper can receive in discounted form to current. To put it another way, all of the prices
from all of years are being discounted to present to make them equivalent. In comparable
form, third year has the maximum present value among all the expected cash flows.
As a result, Clipper is recommended that best period to cut trees is in 3rd year to ensure
optimum net cash-flow.
Question 3:
Information Given: Hose Corporation is debating whether to proceed with a proposal.
The initial invested amount or cash outflow for project with seven-year life cycle would be
800000 pounds, according to the estimates. This project is projected to generate cash-flows of
150,000 pound by the end of year, with this sum expected to increase by 6% each year in line
with general inflation rate. The rate of return set at 13%, and the project's feasibility will be
determined. Viability of the given project has been evaluated, as follows:
Year Net cash flow Discount rate Present Value
1 150000.00 0.884955752 132743.36
2 159000.00 0.783146683 124520.32
3 168540.00 0.693050162 116806.67
4 178652.40 0.613318728 109570.86
5 189371.54 0.542759936 102783.29
6 200733.84 0.480318527 96416.18
7 212777.87 0.425060644 90443.50
Total net cash flows 773284.19
Less: Initial outlay 800000
Net Present Value -26715.81
The discrepancy between present values of cash inflows versus cash outflows across a term of
period recognized as the net present value (NPV). This is beneficial to an organization because it
considers time value of resources and assists the administration of the organization in reaching a
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reasonable conclusion however, it has drawbacks in that this does not consider hidden costs and
could not be employed by business to compare projects of various scales (Lane and Milesi-
Ferretti, 2017).
The overall net cash flows here, have been inflated at rate of 6% incrementally, as shown
in table section. For discounting uses, money percentage of return here is being used. It has
been determined that net present value of cash flows, i.e., after subtracting present value of
overall cash flows from project's initial outlay, is unfavourable after discounting future values to
produce present values equal for them. Such negative value denotes that the cumulative net cash
flows from whole project for the entire project duration wouldn't be able to provide the business
with the same level of return as total initial outlay. As a result, it is loss-making project for the
organization. As a result, Hose Corporation is not recommended to proceed with this project.
Conclusion
Three tasks described in above study are focused on gaining a comprehension of
the financial management concept. From these topics, it is clear that a company can need funding
for a variety of reasons. This is critical for a corporation to consider the requirement for that
financing and to attempt to measure the expense of that financing and also return on
such finance's application such that not just viability of that fiscal source as well as resource
could be recognized, but also company's business could be guided in the appropriate direction
toward progress and development.
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REFERENCES
Books and Journals:
Madura, J., 2020. International financial management. Cengage Learning.
Shapiro, A.C. and Hanouna, P., 2019. Multinational financial management. John Wiley & Sons.
Suryanto, T. and Komalasari, A., 2019. Effect of mandatory adoption of international financial
reporting standard (IFRS) on supply chain management: A case of Indonesian dairy
industry. Uncertain Supply Chain Management, 7(2), pp.169-178.
Lane, M.P.R. and Milesi-Ferretti, M.G.M., 2017. International financial integration in the
aftermath of the global financial crisis. International Monetary Fund.
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