Some of the risks that are unique for such firms include foreign exchange risk, political risk as well as the unique market risk. This is significant due to the fact that Mineral Plc is an international firm having a diverse range of activities across the different countries. This therefore increases the overall risk profile of the firm and projects that it undertake in foreign locations.
This report will provide an analysis of the proposed investment that is to be made in the Medco Republic. This report is significant due to the fact that there are multiple views within the firm that ask for a different strategy to invest into a country which is war torn and companies are facing significant corporate social responsibility issues. This report will therefore perform the net present value analysis as well as other investment appraisal techniques besides discussing the corporate social responsibility issues that may be faced by the firm while making new investment into the country.
This report will be effectively divided into two sections i.e. first section will be discussing the different findings that are being made after performing the analysis whereas the second section of the report will discuss corporate social responsibility along with a discussion on the different risks of investing into a foreign country.
AccoChapter # 2 Analysis and Findings
According to the given data, the overall NPV and IRR are 18.79 and 34% indicating that according to both the threshold levels, the project may be acceptable. It is important to understand that the most important criteria that is being followed when choosing a project based on the NPV is the ability of the project to deliver the positive net value for the firm as well as its shareholders. Given the weighted average cost of capital of 15%, the overall NPV is positive indicating that the project is acceptable at this given risk level. What is also significant to note that the calculations made does not incorporate the risks that are specific to making investment into the foreign countries and as such it ignores the various risks such as political risk, foreign exchange volatility etc
Based on the criteria of IRR, the total IRR comes to the 34% which is over and above the desired level of 25%. As a rule of thumb any investment that offers IRR greater than the required rate of return shall be accepted and as such the IRR is greater than the current required rate of return hence the project shall be accepted even on this criterion also.1
It is also important to understand that both NPV and IRR have their own short comings therefore they may not be relied heavily as to the most conclusive tools for making investment appraisal. What is however, significant to note that the NPV and IRR are still considered as the better measures of the project returns and thoroughly applied by the firms across the world when making investment analysis' Thus based on the available methodologies of project appraisals, NPV and IRR are considered as most suitable