Report on Global Financial Strategy
14 Pages4336 Words94 Views
Added on 2020-06-04
Report on Global Financial Strategy
Added on 2020-06-04
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Global Financial Strategy
Table of ContentsINTRODUCTION...........................................................................................................................1(a) Computation of Net Present Value (Analysing the two case scenarios)...............................1(b) Risks in the market and strategies to mitigate them..............................................................5CONCLUSION................................................................................................................................8REFERENCES................................................................................................................................9
Index of TablesTable 1: Calculation of Net Present Value......................................................................................1Table 2: Calculation of Net Present Value (Case 1)........................................................................2Table 3: Calculation of Net present Value (Case 2)........................................................................3
INTRODUCTIONCapital budgeting technique is determination of potential cash inflow and outflowthrough a particular asset or replacement of the asset in a particular period. It has an importantimpact on short term and long term investment decisions of the entity (Hise and Strawser, 2013).The report discusses the case study of Moulton who is planning to invest in European countriesas well. The Net Present Valuer of the investment will be analysed in the report in order to assessthe profitability of the project. Moreover, the report will also focus on sensitivity analysis of thecases being provided in order to evaluate occurrence and non occurrence of the scenarios.Further, it will discuss several risks that can be faced by the company. Several managementstrategies will also be discussed in order to cope up with the risks.(a) Computation of Net Present Value (Analysing the two case scenarios)Moulton is involved in food processing company which is currently functioning in US.The enterprise is planning to expand its business in East Europe starting from Poland. As per thecurrent economic conditions of the two countries it can be assessed that the Poland have beengoing through 6% inflation rate in the economy. Moreover, US have been experiencing 2%inflation. Net present Value is an effective method to make future projections of cash flows withrespect to an investment. It is vital method of capital budgeting used by the entities in order toassess that whether the investment will prove to be profitable for the company or not (Hall andet.al., 2012). Moreover, it also considers time value money factors in order to calculate the NetPresent Cash Flow through the project. This method will be used to analyse the net cash flow forMoulton in order to assess that whether the investment in Poland will prove to be profitable forthe entity or not. Relative purchasing power parity helps in assessing the purchasing poweramount that can increase or decrease due to change in inflation rate between the countries(McKinnon and Ohno, 2016). Relative change in price levels can also be assessed which help incompensating the difference in inflation rates. The below formula is used to calculate theamount:S1 / S0 = (1 + Iy) / (1+ Ix)where,S1 = Spot excahnge rate at the beginning of the periodS0 = Spot exchange rate at the end of the period1
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