Capital Budgeting for the Multinational Corporation

On the 24th of September 1993 a letter was sent by DAL addressed to ECCCL in confirmation of the payment of $256,800 from Minters trust account for the term of 10 years with repayment of US $500,000 at maturity representing $256,800 principal and interest of AUD 243,200. This letter was a sign of acknowledgement of indebtedness by DAL to ECCL rather than a bearer certificate, which was required. It provided Youyang with no security against insolvency of ECCCL. Minters paid ECCCL the

Target Corporation was founded in 1902 and headquartered in Minneapolis, Minnesota. Target Corporation operates general merchandise and food discount stores throughout the United States. The company’s products range from household essentials, to electronics, to toys, to apparel and accessories, to home furnishings, to food and pet supplies. Most of the merchandise is sold under Target and SuperTarget trademarks, but it also sells under private-label brands, such as Archer Farms, Circo, Merona, and Room Essentials. The company also offers merchandise through programs like ClearRx, Great Save, and Home Design Event. Additionally, Target markets its merchandise under license and designer

b.) There are a few concerns regarding the cash flow statement. Firstly, the significantly increased overdraft will make the bank manager concerned as it will question whether the company will be able to pay the £240,000 loan back in 5 years time. Overall, this would be looked at as a negative cash flow statement as the business has spent more than it has received during 2012. The operation profit before loan is significantly lower than last year and the bank manager might question John why he has taken out drawings of £93,200 when the previous year he withdrew £67,400, bearing in mind that this years profit is far less than previous year.

The Company made a cash payment of $1 million to Bank A, and in exchange, Bank A

Notably, these investments are risky and the company needs to compare the return to their risk adjusted cost of capital for the Ukraine and not the cost of financing the debt to see if it is worthwhile.

This was $750.0M under a Five-Year Revolving Credit Agreement (5 Yr. RCA), $400.0M under a Short-Term Revolving Credit Agreement (ST-RCA) and $1.00B under a Term Loan Credit Agreement (TLCA). Later in 2012, Gilead fully repaid the $1.40B in outstanding debt under the TLCA and ST-RCA. During 2013, they repaid $150M under the 5 Yr. RCA and the remaining balance of $600M in 2014. These transactions can be tracked under the head “Long Term Debt Issued” and “Long Term Debt Reduction” in cells D45, E45 and D46 in Exhibit C. They generated over $3.19B in operating cash flows during 2012, some of which were used to repay the above

Groupe Ariel SA of France is considering a project in Mexico. They need to analyze the net present value of the project, keeping in mind the exchange rates between Mexican Pesos and Euros in order to maximize their return. They also need to keep in mind the inflation rates over time and the risks involved with this type of investment.

1. Assignment of Borrowing and Lending Activity: Presentation of cash flows from the revolving line of credit.

To find the cash flow to creditors, we first need to find the net new borrowing. The net new borrowing is the difference between the ending long-term debt and the beginning long-term debt, so:

Diageo’s mixture of the short- and the long-term debt and the currencies can be a subject for concern: having 47% of the debt was raised via short-term commercial papers and thus exposing the company to the refinancing risk in case of the adverse changes in the interest rates. Currencies’ mixture of debt was also quite concerning: with the ca. 50% of operating profits

This requires renegotiating borrowing terms with the bank and explaining to National why it will not be receiving the dividend it demands. Alliance’s current borrowing agreement with the bank limits borrowing to three times the previous year’s EBITDA and requires written approval from the bank before Alliance can undertake additional, major capital expenditures. Alliance also agreed to a repayment plan of $4,000,000 per year for five years which would last through 2008. Depreciation in 2005 was $6,439,000, making EBITDA equal to $30,333,000. Three times this amount equates to a 2006 borrowing limit of $90,999,000. This limit is $16,826,000 over Alliance’s projected long-term debt in 2006. Further reasoning for the bank to reconsider its borrowing arrangements with Alliance lies in its liquidity, solvency, and leverage ratios. The 2005 and 2006 current and quick ratios remain the same at 1.73 and 1.51 respectively, meaning short-term liquidity remains the same. The total debt ratio decreases from 0.66 in 2005 to 0.63 in 2006. The ratio of long-term debt to current assets decreases from 1.81 in 2005 to 1.77 in 2006. Alliance’s 2006 cash reserves are able to cover 75% of the interest, up from 73% in 2005. Interest is covered 3.67 times by EBIT in 2006, which is higher than all other years with the exception of 2005. Debt compared to prior year EBITDA has decreased from 3.56 in 2003 to 2.45 in 2006. These ratios prove to the bank that

3. The Director of Foreign Exchange hold same opinion with Group Vice President who supported pound sterling funding, but with different reasons. He considered pound sterling as a currency which was as weak as oil price. Borrowing in sterling will create a profit center rather

Several decision makers have criticized the cash flow estimations as they simply do not agree with the decisions they have arrived at from the use of the models. Since there are uncertainties involved in terms of estimates of cash flows some managers become reluctant to use this method as a part of their decision making process as the calculations are far in the future. Therefore, they will take into consideration the near term cash flows. Other managers may have predetermined notions about which project to adopt and may therefore play with the numbers to achieve a desired result (Brealey, 1984). This can be a problem as the results they receive are not from faulty models but from the manager’s inappropriate inputs into the models. Another area of concern is the selection or choice of discount rate (Cooper et.al, 2001). For example if they use an inappropriately high discount rate then this could yield high hurdle rates or conversely if the rate is too low it yields lower rates. What Cooper recommends is the use of a discount rate that reflects the firms true cost of capital which is sound theory of finance advice. Thus, the best to worst case scenarios should be employed to analyze the best possible decision. When the discounted rate includes

While project financing could in theory be applied to all aspects of international construction, and large projects, there are however some factors that must be considered to verify if project financing is the appropriate method. The right candidates are those that can function independently from an economic point of view, can be finished without any uncertainty, and

This project has decided that the initial investment will be partly financed by parent and subsidiary, at debt of 35 % from parent (uk) and 35% from host country (south Korea) to complete the initial investment.