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Financial Management Essay

687 words - 3 pages

Task 1-3

Baxter plc
0 1 2 3 4 5
Sales 1540 1920 1920 1400
Materials (420) (480) (512) (476)
Direct Labour (210) (240) (240) (238)
V. O/Hs (70) (80) (96) (98)
M/A (350) (200) (200) -
Reduction (150) (150) (150) (150)
Building (80) (80) (80) (80)

Taxable

260
690
642
358
Corp. Tax (12,5 %) (32,5) (86,25) (80,25) (44,75)
Machine (1500) 500
W. Cap. (150) 150
C. All. 46,88 35,16 26,37 16,6

NET
(1650)
260
704,38

590,91
954,12
(28,15)
D. Factor
13 % 1.0 0.885 0.783 0.693 0.613 0.543

Present Value
(1650)
230,1
551,53
409,5
584,88
(15,29)

NPV = 110,73

NET

(1650)
260
704,38
590,91
954,12
(-28,25)
D. Factor
20 % 1.0 0.833 0.694 0.579 0.482 0.402

Present Value
(1650)
216,58
488,84
342,14
459,89
(11,32)

NPV = (153,88)

IRR = 13 % + 110,73/(110,73+153,88) * (20 % - 13 %)

IRR = 15,9 %

Task 4

Report

To: Senior Management of ...view middle of the document...

Yours faithfully,

Diva Katharina Schwab
Finance Manager

Task 5

3 Months Forward – Buy Rate
$ 3,4 m/ $1.352 = € 2,514,792.80
Costs – € 2,6 m > € 2,514,792.80

Report

To: Board of Directors Baxter plc
From: D. K. Schwab, Consultant Agency

07th November 2012

Subject: Rejection of the contract with US firm

Dear Sir or Madam,

Baxter plc has received $ 3.4 m for the performance of a contract from a US company. They have to convert the amount to Euro at a rate of $1.352 after 3 months. The calculation showed that the contract costs € 2,514,792.80 m. But Baxter plc has estimated that total costs of fulfilling the contract including delivery are € 2.6 m. That is a balance of € 85,207.20. Due to this fact Baxter plc do not accept this contract.

If Baxter plc decide to buy $ 3.4 m today at the spot rate of $ 1.320 it will cost the company € 2,575,757.50 m. That is also balance of € 24,242.50.

Therefore they should follow other possibilities for example the Money Market Cover. That involves an exporter borrowing in one country in the same currency in which it expects to receive a payment.

Apart from the normal problems which occur in any type of business there are further complications when an organisation wants to trade internationally.

This could include:

• Credit Risk – the US firm might not be able to pay for the contract after 3 months
• Physical Risk – goods can be lost, stolen or destroyed and in that case Baxter plc has to pay for it
• Exchange Controls/Foreign Laws & Customs/Taxation – in the United States can other trade barriers exist and different tax rates might influence the prices
• Political Risk – the US firm might have different bureaucratic regulations
• Exchange Rate Risk – unexpected movements in currency exchange rates for example inflation

All these risks have an impact on international trade and might influence the company´s direction.

Finally, one can say that Baxter plc has to reject the contract discussed above and they should follow all terms and conditions for the future exports.

Yours faithfully,

Diva Katharina Schwab
Consultant Agency

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