- •Abstract
- •1. Introduction
- •1.1. Background
- •1.2. Problem and research questions
- •1.3. Aim and Limitation
- •1.4. Outline of thesis
- •1.5. Abbreviation and definition
- •Irr Internal Rate of Return
- •2. Method
- •2.1. Approach
- •2.2. Data collection method
- •2.3. Primary data
- •2.4. Secondary data
- •2.5. Data processing
- •2.6. Validity, reliability and generalization
- •3. Theories
- •3.1. Principal-Agent Problems
- •3.2. Wacc and opportunity cost of capital
- •3.3. Capm and apt
- •3.4. Estimating β
- •3.4.1. Operating leverage and β
- •3.5. The risk and discount rates for international projects
- •3.6. Purposes of performance measurement
- •3.6.1. Eva, Book roi, and ep
- •3.7. Working capital, depreciation and tax
- •4. Own research
- •4.1. Review of pharmaceutical market in Russia
- •3.1.1. Russian companies and them place in market
- •3.1.2. Pharmaceutical company “Zdorovie Ludi”
- •3.2. Research strategy (Roadmap of decision)
- •3.3. International and European contracts
- •3.4. National contracting in a global economy
- •3.5. National contract low and human rights
- •3.6. (Step 1) Juristic analyses and common mistakes of the contract
- •3.6.1. The formation and scope of a contract:
- •3.6.2. The content of a contract:
- •3.6.3. Policing a contract:
- •3.6.4. Performance, discharge and breach of the contract:
- •3.7. (Step 2) Controlling of strategy and consideration the contract as investment project
- •3.8. Transformation the contract to the invest project
- •Risk of delivery (for buyer)
- •Techniques of payment (risk for buyer)
- •3.9. (Step3) Forecast of outflow and inflow
- •3.10. (Step 4) Determination the risk and discount rate
- •3.10.1. Country risk analysis
- •3.11. Commercial counterparty risk analysis
- •3.12. (Step 5) Procedure of estimation and comparison of the contract
- •3.13. Book Rate of Return (Advantages and disadvantages)
- •3.14. Payback Period and Discounted-Payback Period (Advantages and disadvantages)
- •3.15. Internal (or discounted-cash-flow) rate of return (irr) and mirr (Advantages and disadvantages)
- •3.15.1. Lending or borrowing position
- •3.15.2. Multiple rates of returns
- •3.15.3. Mutually exclusive projects
- •3.16. The cost of capital for near-term and distant cash flows
- •3.17. Profitability Index (pi, advantages and disadvantages)
- •3.18. Net Present Value (npv, advantages and disadvantages)
- •3.18.1 Calculate npv with glance of inflation
- •3.18.2 Calculating npv in other countries and currencies
- •3.19. (Step 6) Performance and agency problems
- •4. Results
- •4.1. Simulation model analysis and calculation
- •4.2.1. Wacc as discount rate
- •4.2.2. Manager’s working capital use penalty points
- •4.2.3. Risk-Adjusted Discount Rate (radr) and ceq
- •4.3. Summary of Simulation model analysis
- •4.4. Scenario analysis and calculation
- •4.4.1. Discount rates that based on wacc
- •4.4.2. Discount rates that based on radr
- •4.5. Summary of scenario analysis
- •4.6. Final analysis and Decision Card (Step 7)
- •Decision Card
- •4.7. What could be improved and suggestion for future research.
- •Conclusion
- •References
- •Appendix 1 – 7 (Simulation Model and Scenario analysis calculation) (Excel) Appendix 1 (Excel)
- •Appendix 2 (Excel)
- •Appendix 3 (Excel)
- •Appendix 4 (Excel)
- •Appendix 5 (Excel)
- •Appendix 6 (Excel)
- •Appendix 7 (Excel)
- •Appendix 8 (Interview questions and structure of survey) part 1
- •A) Survey for managers
- •B) Survey for specialist
- •Part 2 Survey of experts
- •Part 3 Results and Conclusion a) Survey for managers
- •Conclusion
- •B) Survey for specialist
- •Conclusion
- •C) Survey of experts
4. Results
4.1. Simulation model analysis and calculation
There are several methods and techniques I described above, there are judicial analyses and some methods of invest decision. But now I am going to consider three examples, three contracts which I should accept or reject. The terms of contracts are the following:
Contract (project) |
upfront payment |
term of payment |
term of delivery |
I |
- |
Upfront payment |
CEXW |
II |
30% |
L/C |
FOB |
III |
10% |
L/C |
СIF |
Table 4.1
Before I start to describe the projects I should make some assumptions. All of these contracts, which I am going to analyze, are located on the same market, for example European market. The basic price of goods is approximately equal, the price of good does not depend on term of payment in my example. The last assumption that is cash flows, which are created by contracts, are approximately equal too. I am going to concentrate on the way our financial methods and tools, described above, will work in practice. That is why I cut of quantity of variables.
The first contract: a buyer has just paid for the goods which have been taken from factory’s stock (CEXW). The first project has created negative as well as positive cash flows. There are sum of contract, cost of delivery, insurance, custom clearance. All risks are covered only by a buyer.
|
Cash Flows $ |
|||||||
Contract I (project) |
0 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
-300 |
- 6, - 9 |
- 45 |
+90 |
+140 |
+150 |
+130 |
+80 |
|
Table 4.2
The second contract: a seller has not got the goods on stock and he has to produce the goods, but a seller needs the guarantee that is why a seller asks 30% of upfront payment. Another part of payment for goods comes when a seller produces the goods and loads them to the ship. The main parts of risks are still covered by buyer. The cash flows are:
|
Cash Flows $ |
|||||||
Contract II (project) |
0 |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
-90 |
-210, - 6, - 9 |
- 45 |
+90 |
+140 |
+150 |
+130 |
+80 |
|
Table 4.3
The third contract: a seller still needs upfront payment but 10% only. Another part of payment for goods is made by L/C. The L/C outstands when the goods are loaded to the ship. The L/C provides sharing the risks between a seller and a buyer. The parts have the agreement that the term of delivery will be the СIF and seller can receive the money after realizing the term of delivery. essential to cut down period of production and delivery. The project creates cash flows in the following way.
|
Cash Flows $ |
|
||||||
Contract III (project) |
0 |
1 |
2 |
3 |
4 |
5 |
6 |
|
-30 |
-270, - 45 |
+90 |
+140 |
+150 |
+130 |
+80 |
||
Table 4.4