International Finance
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1. What are some specific examples of projects or decisions, which could be made, using, and discounted cash flows analysis within your company or business experience?
2. Why is inflation not a consideration when the basic concept that money has time value is discussed? Inflation does play a role, when determining the specific discount rate to be used. What impact does increasing inflation have on the required return of any project?
3. The heart of discounted cash flows analysis is the assumptions behind the numbers. Once the mechanics of the tool are mastered, then one needs to focus on the assumptions behind the numbers. How might a manager manipulate the assumptions behind a discounted cash flows analysis of a project to ensure a favorable result (e.g. positive NPV)? If you are in a position to review and approve capital projects that have been evaluated using DCF techniques, how should you guard against being manipulated?
4. Multinational companies have a unique set of concerns. If they decide to do a project such as construct a factory, in a foreign country, the profits from that project are normally generated in that nationâ??s currency (e.g. yuan, pounds etc). Currency exchange rate differences can impact the company. For example, if an American firm wants to bring those profits back to the US to invest in a project, what risk does the company face? How might the company hedge or deal with this risk?
5. Analyze a capital project's present value based on expected future net cash flows
6. Please discuss several risks associated with international investment decisions. What might be an example of each of these risks?
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This solution discussed cash flow and inflation.
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1. What are some specific examples of projects or decisions, which could be made, using, and discounted cash flows analysis within your company or business experience?
Some examples of projects or decisions that are made in regards to discounted cash flow within a company or business is important. I have seen discounts at Sears for the Kenmore Washer, and since this is rated at a three or less on their star ratings, then I am not interested in purchasing the product. Furthermore, since they are not selling, the store is choosing to have a sale in order to get people to buy the product in order that they have what is needed for their home. One would call this false advertising, and this is something that I would not do because it can cause a person to lose customers in the midst of trying to bring in revenue for the company. Another instance is when a coupon is available for milk at Dillon's because people are not buying the product. This is because of not getting enough revenue for that particular product, and they are likely to buy the product as a result.
2. Why is inflation not a consideration when the basic concept that money has time value is discussed? Inflation does play a role, when determining the specific discount rate to be used. What impact does increasing inflation have on the required return of any project?
Inflation is usually not a consideration because of the money and time value involved in it. This is because people do not understand that inflation always increases the price, and makes sure that individuals have a hard time buying the products they need in order to survive. For example, every time gas goes up customers do complain because it could cost them up to $100 at the pump depending on the size of the gas tank and their vehicle. When inflation occurs, the return on a project will decrease due to organizations struggling to have the means in which to finish what it is they started on a regular basis. I have seen this in my own life. For instance, when the gas prices go up, I get gas when I am at half tank, and go the pump for less. The same is ...
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