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建立人际资源圈加拿大论文代写范文：increasing its growth
2017-04-28 来源: 51due教员组 类别: Essay范文
本篇加拿大论文代写范文讲了由于项目的净现值为94,511美元，内部收益率大于所需回报率，所以对加拿大的投资是有利可图的。虽然博雅特仍然关注汇率，但使用套期保值策略的数额很小，并不重要。即使汇率风险和通货膨胀风险，公司仍将从投资中获利。本篇加拿大代写由51due论文代写机构整，供大家参考阅读。
Eight years after the Geo Tech had been performing well and increasing its growth, Boyatt saw the business opportunity in Canada. This case write-up analyzes the whether Geo Tech’s investment in the Canadian market can be profitable or not. With the assumption that all of the cash flows take place at the last day of the year, we calculated the NPV for this investment without a renew contract to be $94,511 and the IRR to be 14%, suggesting that the project is profitable. With a renewed contract, the NPV of the project turned out to be USD 295,288.01 and the IRR is 21%. Therefore, we recommend that Geo Tech go ahead and expand to the Canadian market with a renew contract because the investment will add value to the company. Since the professor suggested that it is too costly to hedge for the inflation risk and exchange rate risk, this case also calculated how much could be lost due to those two risks.
Introduction
Geosystems Technology Group was established in 2002 aimed at selling geographic information systems. Timberland owners can use this technology to monitor harvesting activities, optimize development, and maximize long-term value for their firms. The product currently offered three levels of service by providing 3-6 year contracts to the clients. Aware of competing products available internationally, Boyatt decides to establish a facility in Canada, in order to become an early market entrant. Although they plan to enter the Canadian market, they need to consider inflation and the exchange rate risk. Due to the demand analysis stated in the case, Boyatt plans to stay in the Canadian market for five years before transferring everything back to the USA. Thomas Boyatt is creating the Canadian site to have a first-mover advantage with his new technology, as the timberland industry is growing in the foreign country. He is hoping to have the same success in Canada than he does in the US. However, this investment is temporary as Boyatt’s ultimate goal is to transfer customers to one of the US sites. Boyatt believe that the owners of Timberland will develop a positive perception of the US sites after they have had experience with Geo-Tech Canadian sites. The decision of whether to make the investment in Canada or not will depend on the result of the NPV calculation.
Problem Statement
Decide on whether the investment in the Canadian market will be profitable or not by calculating the NPV, taking into consideration of the exchange risk and inflation risk.
Analysis and recommendations
NPV calculation results
The net present value (NPV) model was used to determine whether the investment is profitable or not. Although the investment decision cannot be based solely on the IRR, we also calculated the IRR as a reference. First, we calculated the sales generated from the set-up fee and the annual licensing fee. Please refer to the sales forecast section in Exhibit 1 for details. Next, the projected income statement calculated the net income the firm will be generating after deductions of variable costs, fixed costs, and tax. The next section calculated free cash flow for each year in Canadian dollars. Next, using the projected exchange rates, those cash flow were translated into USD and discounted at the WACC of 9.65% to arrive at the NPV of $94,511.57 and an IRR of 14%. Since the NPV is positive and the IRR is greater than the required rate of return, we recommend the management team to go ahead with this investment.
Although the management team does not plan to take into account the effect of the renewed contracts, we nevertheless calculated this scenario to compare with the base case scenario. Exhibit 2 shows what would happen to the NPV if at year 4, the total number of contracts equaled 10 new contracts plus half of the 20 contracts in year 1 that could be renewed. The total number of contracts for year 4 is therefore 20 and using the same logic, the total number of contracts for year 5 is 25. Under this scenario, the NPV is $295,228.01 and the IRR is 21%. By allowing the clients to renew the contract, the firm could potentially make about $200,000 more.
Since we used the firm’s WACC as an estimate for the investment project’s risk, I did a sensitivity analysis of how the NPV can move with different assumptions of the WACC. According to Exhibit 3, even if the WACC increases to 10.65%, the firm can still profit $71,310. As the WACC gets lower, the firm will profit more. So from the sensitivity analysis, it is safe and profitable to invest in the Canadian project.
Exchange rate risk
One major risk for this decision is the exchange rate risk. According to the case, the Canadian dollar has been appreciating relative to the US dollar over the past years. However, Boyatt thinks otherwise and believes that in the future, the Canadian dollars might depreciate. If it really depreciates, his business will be hurt. Since the professor recommended that hedging the risk using derivatives such as options and swaps is not worthwhile for such a small amount of money, we calculated how much the firm could lose given the expected exchange rates. If the Canadian dollar depreciates from 0.95 to 0.9, then the firm can potentially lose 5.25% of its investment value.
A sensitivity analysis is conducted (Exhibit 3) to examine the impact of exchange rate on the final NPV and IRR. Under three different scenarios, I calculated how much the project would be worth if the Canadian dollar does not depreciate and stays as strong as the USD. The NPV would have been $120,464 and the IRR would have been 14%. I also calculated the NPV and IRR to be $426,858 and 16% respectively if the CAD appreciates relative to the USD. The analysis showed that if the firm does not hedge, then they could potentially lose about $25,000.
Inflation risk
Another risk indicated by the case is the inflation risk. According to the purchasing power parity, the change in the spot price of USD/CAD is equal to the difference in inflation for those two countries. The idea implied by this equation is that higher inflation rates leads to currency depreciation. Since the Canadian dollars have an expected inflation of 2.04% while the USD has an expected inflation of 1.74% over the next five years, the Canadian dollars will worth less in real terms. If we exchange the earnings in CAD back to the USD, without any hedging, the firm could lose about 0.3% of the investment value.
Conclusion
In conclusion, since the NPV of the project is $94,511 and the IRR is greater than the required rate of return, the investment in Canada is profitable. Although Boyatt is still concerned with the exchange rate, the amount is small and insignificant to use a hedging strategy. Even with the exchange rate risk and inflation risk, the firm will still profit from the investment. So we strongly suggest that Boyatt go ahead and invest in Canada.
