This 18 page paper is based on a case study supplied by the student. A pessimistic net present value calculation has indicated a project is not worth undertaking. This paper examines the base and the optimistic projections and considers if they are worth undertaking at differing discount rates, looks at which changes between the projections will have the greatest impact and calculates a weighted probability for the return. The bibliography cites 3 sources.
Name of Research Paper File: TS14_TEcemex1.rtf
Unformatted Sample Text from the Research Paper:
this case Indonesia, as this is the project return rather than the remittance back to the parent company. In the case provided the net present value of the project cash
flows has been claclated as Rp2,210,153,4941. This is including the terminal value of the project. The figure has been calculated by the student. Year Free Cash Flow Discounted Values
1998 (Rp22,000,000,000) (Rp22,000,000,000) 1999 Rp2,305,812,608 Rp1,730,354,305 2000 Rp3,817,966,905 Rp2,150,078,002 2001 Rp6,054,741,468 Rp2,558,754,906 2002 Rp7,854,818,333 Rp2,491,037,456 2003 (Including terminal value) Rp64,204,606,766 Rp15,279,928,825 Net Present Value Rp2,210,153,494 b. The internal rate
of return has also been calculated by the student on the spreadsheet provided as 36.394%. c. If we are looking at this project from the perspective of Cemex and looking
at the cash flows within Indonesia then we are looking at the figures given above. The internal rate of return is a good measure for comparing a number of different
returns. In this basic scenario the internal rate of return of 36.394% is very good and as such is giving a good level of cash flow. If the funds were
to stay in Indonesia an the company undertaking the project was Indonesian then this may be sufficient justification of the project. However, when we look at this project there
are many more complications, Cemex is not an Indonesian company and as such the net present value of the project alone is not sufficient justifications when it comes to the
decision to inverts. If we look at the case Indonesia has an inflation rate ten ties that of the US. Whilst this can be allowed for ion many of
the calculations we also have to remember that this will have an impact on the exchange rates between the two currencies. There is some evidence for purchasing parity theories may