- •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
2.3. Primary data
To extract the main parts in it the authors ask information from specialists in this sphere through interviews and question lists. Beside this I research trends in financial statements and different internal documents to confirm received information .The interviews with the managers were and instead of a questionnaire I used an interview guide with some of the questions decided previous to the meeting.
As information basis for model creation the data received from experts of a various profile, responsible for result as a whole serves. With that end in view authors had been spent interviews and answers to the questionnaires made by us are received. Reception of the information on production in whole, the basic stages of building and influence of each of them on result of work of the company as a whole was the interview purpose.
When analyzing needed data for performance measures as a starting point was the limitation of work – system should be resource effective and simple – and in this term the existing annual reports and other company documentation was investigated and used as a data source.
2.4. Secondary data
Secondary data was collected through the books, articles, and web sates to construct a theoretical base convenient for the aim of the research. After collection the materials the selection was made to use in research to the most useful theories. I have tried to involve the performance measures more additional sources.
2.5. Data processing
The articles also were in order to provide better understanding for respondents the strategy of may research. Qualitative method to explain whether the researcher logic valid conceptions, relevant to the research. For example, proposed four criteria for judging the soundness of qualitative research and explicitly offered these as an alternative to more traditional quantitatively-oriented criteria. Their proposed criteria and the quantitative criteria are referred to the degree to which the results of qualitative research can be generalized or transferred. From a qualitative perspective transferability is primarily the responsibility of the one doing the generalizing. The idea of dependability, on the other hand, emphasizes the need for the researcher to account for the research occurs. The researcher is responsible for describing the changes that occur in the setting and how these changes affected the way the research approached the research. Conformability refers to the degree to which the results could be confirmed or corroborated by others. The researcher can document the procedures for checking and rechecking the data throughout the research. In order to rely on the data, I’ve used several independent sources of information and checked. For example, it is choice of the Beta. The most common way to estimate the Beta of a stock is to figure out how the stock price has responded to market changes in the past. We obtained Beta through a calculation of the covariance. According the input for the cost of common equity is usually used CAPM model. As I mentioned above, the company’s contracts portfolio is representative. The contracts evaluated fall within the range of company’s existing projects. It’s possible to estimate the value of contracts by finding out data from the capital market. Since the company is listed o in the Russian finance market it is possible to use this dates for calculation. Computing Weighted Average Cost of Capital (WACC) According to Brealey-Meyers-Allen Eight Edition (2006) when the firm uses debt financing, the company’s cost of capital is not the same as, the expected rate of return on the firm’s stock; but is higher because of financial risk. In may analysis, the cash flows being discounted are pre-debt cash flows, that is, cash flows to the firm, and then the appropriate discount rate is the cost of capital .The cost of capital is the average of the cost of equity and the after-tax cost of debt, weighted by their market value proportions. The company's cost of capital was calculated as a weighted average of the returns expected by investors.