Fin 570: International Finance Fin 570: International Finance Dr. Greco, Summer 2009 Dr. Greco, Summer 2009 Rezene A. • Calvin C. • Edward M. • Vince T. • • Calvin C. • Edward M. • Vince T. • Tiffany T. Tiffany T. Wiley International Wiley International WI
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Fin 570: International Finance Dr. Greco, Summer 2009 Calvin C. Edward M. Vince T. Tiffany T. Rezene A. Calvin C. Edward M. Vince T. Tiffany T. Wiley International.
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Fin 570: International FinanceFin 570: International FinanceDr. Greco, Summer 2009Dr. Greco, Summer 2009
Rezene A. • Calvin C. • Edward M. • Vince T. • Tiffany T. • Calvin C. • Edward M. • Vince T. • Tiffany T.
Wiley InternationalWiley International
WI
WIWI
• Manufacturer of motors and componentsManufacturer of motors and components
• ““Wiley Inc.” to “Wiley International”Wiley Inc.” to “Wiley International”
• Best managers assigned to foreign Best managers assigned to foreign divisionsdivisions
– Regional managers propose to HQRegional managers propose to HQ
– Made separately due to difficulties in risk Made separately due to difficulties in risk differencesdifferences
About Wiley InternationalAbout Wiley International
WIWI
Richard Esposito’s new policyRichard Esposito’s new policy
•Uniform domestic and foreign decision making process
•Regional managers to provide project’s FCFs and NPV
•Apply U.S. hurdle rate of 9% to all international projects
•New policies speed up decision making
– Consider non-quantifiable factors
About Wiley InternationalAbout Wiley International
WIWI
Purpose: Purpose: Increase production capacity
• Finance a new manufacturing plantFinance a new manufacturing plant
– Increase market share and profit marginIncrease market share and profit margin
• Gain competitive advantageGain competitive advantage
– Foreign firms who face trade barriersForeign firms who face trade barriers
– Small domestic firms with a history of Small domestic firms with a history of quality problemsquality problems
The Brazilian ProposalThe Brazilian Proposal
WIWI
Purpose of RequestPurpose of Request
• Quality of workforce and regulationsQuality of workforce and regulations
• Take advantage of incentive programs Take advantage of incentive programs from Brazilian governmentfrom Brazilian government
• Division requests – at R$2.8/US$1:Division requests – at R$2.8/US$1:
The Brazilian ProposalThe Brazilian Proposal
WIWI
Financial JustificationFinancial Justification
• R$6m training expensed for taxesR$6m training expensed for taxes
• R$30m will be using 5-year straight-line R$30m will be using 5-year straight-line depreciationdepreciation
ProjectProject FinancingFinancing
•Purchase equipment from Japan
•Financing 80% of project with 5-year loan denominated in Yen at 0.5%
The Brazilian ProposalThe Brazilian Proposal
• Project’s IRR is calculated using CFs Project’s IRR is calculated using CFs denominated in Real while U.S. hurdle denominated in Real while U.S. hurdle rate is 9%rate is 9%
• 5.5% value (NY’s 6.0% - Japan’s 0.5%) is 5.5% value (NY’s 6.0% - Japan’s 0.5%) is not an accurate measurementnot an accurate measurement
• Degree of leverageDegree of leverage
– 1.5 to 1.0 is preferred1.5 to 1.0 is preferred
– Project will result in ratio of 4.0 to 1.0Project will result in ratio of 4.0 to 1.0