International Financial Management Report: Case Analysis

This report provides an in-depth analysis of international financial management, focusing on key aspects such as capital budgeting and investment decisions. It begins with a case study of Curt plc, evaluating the financial implications of in-house widget production versus outsourcing, utilizing discounted cash flow analysis to determine the most financially viable option. The report then examines a second case involving Clipper, assessing the optimal timing for harvesting trees based on cash inflow projections and cost of capital considerations. Finally, the report delves into the concept of the real discount rate, calculating its value and applying it to a project scenario to determine its net present value (NPV). The conclusion highlights the significance of financial management in business and the importance of investment appraisal techniques in making sound financial decisions.

International Financial
Management

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
QUESTION 1.............................................................................................................................3
QUESTION 2.............................................................................................................................5
QUESTION 3.............................................................................................................................5
CONCLUSION..........................................................................................................................6
REFERENCES...........................................................................................................................7

INTRODUCTION
The international financial management accounts for handling the finance of the
business pertaining to the global businesses. In order to expand the business globally it is
essential to keep into account the various resources required and how to estimate that the
proposal is valuable and advantageous for the company. It involves application of the various
capital budgeting techniques which provides assistance in undertaking the decisions which
will help in effectively meeting with the desired business objectives. This report provides an
analysis of the various theoretical models and techniques which helps in taking right and
accurate business decisions. It involves the implementation of the various capital budgeting
techniques for making a decision.
QUESTION 1
As per the case Curt plc, being irritated with its suppliers because of the increase in
the price of the component widgets by 10% for the next 5 years resulted into emergence of
the idea to its Managing Directors to manufacture the component within Curt plc. in order to
do this, the company is required to purchase machinery tools and other equipment’s for
producing the component widgets in-house. Thus, for taking the decision whether it should
produce the widget itself or not.
Year
Cash
outflow
under In-
house
productio
n
Discounting rate
@16%
PV
value
of cash
inflow
0 -70000 1 -70000
1 -80000 0.862
-
68965.
5
2 -82000 0.743
-
60939.
4
3 -84000 0.640
-
53815.
2
4 -86000 0.552 -47497
5 -78000 0.476
-
37136.
8
Total PV of cash
outflow
-
338354
Loss of income -48000
Total cash outflow
-
386354

Year
Cash
outflow in
case of
outsourcin
g
Discounting rate
@16%
PV
value of
cash
inflow
1 -100000 1
-
86206.9
2 -110000 0.862
-
81747.9
3 -121000 0.743
-
77519.6
4 -122100 0.640
-
67434.7
5 -146410 0.552
-
69707.7
Total PV of cash
outflow -382617
Based on the above, it can be stated that the cash outflow when the widget is
produced in-house and or outsourced to the suppliers. When the component is outsourced, the
total cash outflow is £382617 which is less than the in-house production of the widgets by the
concern which is £386354. Thus, it can be concluded that the Curt plc should not invest in the
manufacturing the component widgets.
Factors having an impact on this investment decision
There are number of factors which a business is required to account for in order to
undertake the right and the valuable business and investment decisions (Salvado, de Almeida
and e Azevedo, 2021). The company requires to determine the amount of profits it will add to
the business along with other benefits. In respect to the investment decisions, cost is the key
component which is required to be accounted for. Apart from the profitability and the cost,
there are other aspects which the finance manager takes into consideration which leads to the
determining the maximising benefits it will add to the business (Ágnes and Kiss, 2020). This
is being identified by the application of payback period, NPV analysis and other investment
appraisal approaches. The payback period helps in determining the time period after which
the organization would be able to recover the amount it has invested into the project as an
outlay. The net present value is another investment appraisal technique which is being used
by the finance managers in determining the profitability attached to the project as it converts
the future cash flow to its present value (Brown and et.al., 2019). In addition to this, the
company is also required to look at the cost of capital and the risk factor attached to it. As
there are various sources of fund available to the business to acquire required funds which

each source is having some sort of risk which is required to be analysed effectively in order
to reduce the level of risk.
Along with the financial factors, there are non-financial aspects also which should
be considered while forming a decision (Hendiarto, 2021). The knowledge and skills of the
existing employees is also an important factor as introducing new machinery is the not the
only thing but the company is needed to hire the worker who is having the relevant skill sets
to use that machinery. This might result into incurring additional cost for the business. Also,
change in the technology can also be a huge problem as technology upgrades rapidly,
therefore, the business is required to analyse the market before taking the decision.
QUESTION 2
Year
Cash
inflow
Cost of capital
@10%
PV value of
cash inflow
0 10000 1.000 10000
1 12000 0.909 10909
2 14000 0.826 11570
3 15500 0.751 11645
4 16500 0.683 11270
Based on the above, it is advantageous for Clipper to harvest the tress in year 3 as it will drive
in higher cash inflow.
QUESTION 3
Real discount rate = (1 + nominal rate) ÷ (1 + inflation rate) - 1
= (1 + .13) ÷ (1 + 0.06) -1
Real discount rate = 1.066 – 1 = 0.066 or 6.6%
Therefore, real discount rate = 6.6% (approximately)
Since real cash flows are equal for every year, we can calculate the present value of the
project using the formula for annuity.
PV= Annuity x PVIFAi%, n
In this case, Annuity is 150,000
PVIFA 7%,7 = 1-(1+i)-n/I = 1- (1+0.07)-7/0.066 = 5.465
Using the real discount rate of 7%, the project NPV is
(150,000 x PVIFA 7%,7) – 800,000
= (150,000 x 5.465) – 800,000

= £19789.91
Alternative solution
Calculate NPV:
Adjusting cash flows (CFs) for inflation
Year
Cash
inflow inflation rate @6%
Adjusted
cash inflow
1 150000 1.06 159000
2 150000 (1.06) ^2 168540
3 150000 (1.06) ^3 178652
4 150000 (1.06) ^4 189372
5 150000 (1.06) ^5 200734
6 150000 (1.06) ^6 212778
7 150000 (1.06) ^7 225545
Year
Cash
inflow
Discounting rate
@13%
PV value of
cash inflow
1 159000 0.8850 140708
2 168540 0.7831 131992
3 178652 0.6931 123815
4 189372 0.6133 116145
5 200734 0.5428 108950
6 212778 0.4803 102201
7 225545 0.4251 95870
Total present value of cash
inflow 819681
Initial investment (II) 800000
Net present value (NPV) 19681
Since the NPV derived is positive, therefore, it is financially viable to make an
investment into the commitment.
CONCLUSION
It can be concluded from the above that the financial management is very essential
for every business organization as it assist in effectively handling the financial resources of
the organization. By the usage of investment appraisal techniques prompt and accurate
decisions are being undertaken.

REFERENCES
Books and Journals
Ágnes, S. M. and Kiss, H. J., 2020. Locus of control and Human Capital Investment
Decisions: The Role of Effort, Parental Preferences and Financial Constraints (No.
2055). Institute of Economics, Centre for Economic and Regional Studies.
Brown, J., and et.al., 2019. The Effect of Performance Measures on Risk in Capital
Investment Decisions. Available at SSRN 3516062.
Hendiarto, R. S., 2021. The Effect Of Risk Management On Capital Investment Decisions
(Case Studies on Companies at the West Java Chamber of Commerce and Industry
and others in Bandung). Turkish Journal of Computer and Mathematics Education
(TURCOMAT). 12(8). pp.1169-1177.
Salvado, F., de Almeida, N. M. and e Azevedo, Á. V., 2021. Building Investment Index: A
Decision-Making Tool to Optimize Long-Term Investment Decisions.
In Sustainability and Automation in Smart Constructions (pp. 243-246). Springer,
Cham.