- •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
1.5. Abbreviation and definition
APT Arbitrage Pricing Theory
CAPM Capital Assets Pricing Theory
CF Cash Flows
CP Commercial Paper
CEQ Certainty-Equivalent
DPP Discounted-Payback Period
EP Economic Profit
EVA Economic Value Added
Irr Internal Rate of Return
MIRR Modified Internal Rate of Return
MIBOR Moscow Interbank Offered Rate
MTN Medium-Term Notes
NPV Net Present Value
PP Payback Period
PI Profitability Index
RADR Risk-Adjusted Discount Rate
STN Short-Term Notes
SWOT Strength Weakness Opportunities Threats
WACC Weighted Average Cost of Capital
2. Method
2.1. Approach
The main two ways of drawing scientific conclusions are inductive and deductive. The induction is based on the empirical facts, while deduction is based on theories. An inductive approach means that the study is based on empirical facts, which will later be the foundation of general conclusions. An inductive conclusion can not be considered completely reliable, as it is built on empirical material that rarely includes all aspects.
A deductive point of view is focused on theories, and from there the researcher investigates whether reality agrees with the theory .Deductive theory as the most common perception of the relationship between theories and practice. Based on the present knowledge regarding a certain area, the researcher deducts one or more hypothesizes that have to pass an empirical review.
The authors have used a deductive approach to study, as they have performed their empirical studies based on existing theories. The theories have been adapted to match the situation a company acting in strict regulation and having standard business processes. Obvious that companies building their processes in different ways, but in terms of pharmaceutical industry I see the standard procedure of project estimation. The use method of estimation invest project in a processes when it consider the cross-border contract.
2.2. Data collection method
The choice of data collection method depends on affects the quality and cost of the data collected. There are lots of data collection methods such as mail questionnaire, telephone interview, or expert’s interview. For example, mail questionnaires are very good for collecting factual data, but they are less effective when sensitive or complex data are needed. Quality and cost are highest with expert’s interviews or telephone interviews whereas quality and cost are lower with mail questionnaires. Investment project and its analysis to make decision that needs to be analyzed from much important point of views. If it could not oversee some of the components, wrong decision could be made.
Investment decision depend on key factor analysis of situation including market overview to choose the project having potential for long-term profit generation, costs evaluation as well as analysis of probable growth, finance analysis of required return from the project and choice of appropriate method of investment appraisal.
I have decided that case study method is the best solution for conducting research in the chosen field. Exceptional or unusual situation can be subject of single-case study, highlighting remarkable characteristics or investigating unexpected results. That is why I have chosen this method. Evidence for case study comprises both qualitative and quantitative data. Quantitative data deals with numbers and calculations whereas qualitative data is descriptive data. The case studies I used are based on quantitative data. I’ve conducted investment appraisal and calculated ratios: NPV, IRR, PP, and PI. At the same time qualitative data such as market reviews, simulation model, scenario, and SWOT analysis, is an important source for conclusions. I’ve tried to find information already gathered and analyzed by investment professionals and published in special reviews. To avoid subjectivity of one source of information. I used information that was confirmed by at least two sources.