Project Viability: NPV Calculations and Currency Risk Management Case Study

Project Viability: NPV Calculations and Currency Risk Management

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Introduction: Project Viability Analysis: NPV and Currency Risk

a) Viability of both projects and justify discounting rate

Viability of project

The viability of a project is described as the rest tolerant factor and the ability two essays the project program. In order to the provided case study is described the two funds of the UK and USA which is valuable and consist of cash inflow and cash outflow respectively. In order to, the creditability and viability of the project are involved by the investment appreciates the technique and capital budgeting method which is described as the major demand to establish expected future return (Wiedmann and Lenzen, 2018). In order to, compute the net present value is necessary to identify the viability of a particular project and that seemed to be a suitable middle to identify the project viability.

Additionally, identifying the future cash flows, as well as monetary systems of the project NPV calculation, is a useful financial metric and that established the appropriate key methods to emphasize the primary requirement of project appraisal. In order to, expressed the potential cost of the business is always important and considered for reducing excessive operational costs to incur more profitability. Additionally, sometimes the expenses are deemed to explain the viability of the particular project which is necessary to identify the stability of both projects which is important for future comparison (Krammer et al. 2018). Apart from that, multiple projects have been selected to find out project viability and that describes the expenses are deemed with the highest priority of selection.

Discounting rate

The discounting rate of 10 deals with the cost of capital of an investment appraisal or capital budgeting to establish the overall time value of money which is needed to consider for single or multiple projects. According to the provided case study, it has been recognized the cost of capital and discount rate for the project is almost 8% and for project B which is considered as 6% respectively. Additionally, a discounted rate is also considered 8% respectively for the US best project and almost 6% for the USA base project (Oviatt and McDougall, 2018). The calculation of net priced value has described the viability of the board project and that has to be considered by the discounting rates after assuming the USA and UK-based project which is described as follows.

The most prominent discussion on discounting rates involves the basic rates and whether the effect can impact over time. Apart from that discounting rate helps to find out the actual value of future money and that defers the future cash flow which is basically used for individual business organizations (Welch et al. 2020). Additionally, a cash flow sometimes back to present value which is required for the investment and that describes how business opportunity can be maximized. This particular rate sometimes weighed WACC (Weighted Average Cost of Capital) relatives with the risk involved at the time of investment. Apart from that, asset utilization is always important to maximize profitability in business and that efficiently manage business cash flows.

b) Calculation of Net present value and examination of investment needed

Net present value

Project A
Year	Cash Flow	Conversion Factor (USD to Euro)	Converted Cash Flows	Discounting Rate @ 8%	Discounted Cash Flows (Converted)
0	$ -2,00,00,000.00	0.98	€ -1,96,00,000.00	1.000	€ -1,96,00,000.000
1	$ 20,00,000.00	0.98	€ 19,60,000.00	0.926	€ 18,14,814.815
2	$ 40,00,000.00	0.98	€ 39,20,000.00	0.857	€ 33,60,768.176
3	$ 50,00,000.00	0.98	€ 49,00,000.00	0.794	€ 38,89,777.981
4	$ 60,00,000.00	0.98	€ 58,80,000.00	0.735	€ 43,21,975.534
5	$ 80,00,000.00	0.98	€ 78,40,000.00	0.681	€ 53,35,772.265
Net Present Value	€ -8,76,891.229

Table 1: Calculation of NPV for Project A

The above calculation is indicated the viability of both projects and that can deem the appropriate project value which is described by the USD and EURO. The computation of NPV is considered as -876891.22 for project A while the currency rates are convertible to EURO while conversion factors are 0.98 respectively.

Project B
Year	Cash Flows	Discounting Factor @ 6%	Discounted Cash Flows
0	€ -2,00,00,000.00	1.000	€ -2,00,00,000.000
1	€ 20,00,000.00	0.943	€ 18,86,792.453
2	€ 30,00,000.00	0.890	€ 26,69,989.320
3	€ 40,00,000.00	0.840	€ 33,58,477.132
4	€ 80,00,000.00	0.792	€ 63,36,749.306
5	€ 80,00,000.00	0.747	€ 59,78,065.383
Net Present Values	€ 2,30,073.594

Table 2: Calculation of NPV for Project B

The above table of Net present value is considered for the particular project as 2, 30,073.59 respectively for project B. The calculated EURO is considered as 6% respectively that has been taken to calculate the feasibility of currency.

Discussion on investment and forward exchange risk

The initial investment is calculated after identity file cash inflow and outflow of the project and that is considered as an appropriate parameter to achieve the financial and nonfinancial objectives or goals. The calculated figures have described the viability of both projects and identified the investment values to achieve the expected profit from the project (Naqshbandi and Jasimuddin, 2018). Based on the particular currency the feasibility of the project is calculated with the spot rate and that assigned available price coated for the individual currency which is important for financial factors.

The forward rate risk is considered by the usage of the investment value of both project and that describe the streamlined performance at the time of currency fluctuation. In order to, encourage individual investors are most important to determine the monetary system and efficiently minimize the potential risk of the project (Gaur et al. 2018). Apart from that, the fixation of currency value and hedging is considered the main witness to justify the fluctuations of currency. In order to determine the potential monitor of the business or currencies calculated by the exchange rate and contract prices.

c) Changes in the exchange rate and possible solutions to dealing with the fluctuation

Anticipation of change

The anticipation of a change in the exchange rate is examined by an organization or project steps such as identifying the economic strength, forecasting exchange rates and purchasing power of each party.

The purchasing power of the party

The basic concept of purchasing power of a party is to encourage the organization and establish potential output. In order to identify the basic difference between the currencies described by the PPP and describe the realistic and idealistic performance to establish potential with the overall purchase power.

Forecasting exchange rates

The exchange rates modelling is used at the time of maintaining performance areas to identity file the relationship between the military model and data to find out the feasibility of the project.

Economic strength

In order to find out the economic strength of the project is considered an important stage and that makes videos and possible solutions at the time of currency fluctuations. In order to, at the time of identity, the expected valuation of a currency is to identify the overseas market (Marchese et al. 2018). Describe the exchange growth which is potential as a second important stage where employing possible solutions is completely made to identify the growth of currency exchange.

Possible solutions to reducing basic impact

The possible remedies are important for the individual project to eliminate the major difficulties. In order to, idealistic solutions in a project are involved by the idealistic solutions and that necessary for individual business organizations. Identifying the transaction-related issues, and a potential risk of the project, is necessary and that made idealistic solutions that are more important for the particular project. Most business organizations identify numerous solutions to maximize the profitability of the project (Adnan Bataineh, 2019). In order to, identify the problems and important remedies involved to make idealistic solutions in the business.

Most business organizations are focused on the potential remedies to maximize project opportunity and that is considered a necessary step of both projects. The fluctuation rates of currency sometimes impact the performance and that improves the identification of the primary adherence of the project. The low-risk management is always involved in the business to maximize profitability and that can able to maximize major returns (Chams and García-Blandón, 2019). Apart from that, idealistic solutions are always important to achieve desired profit from the project and minimize the currency impact on the particular project.

d) Discussion on the calculation and justify the selected project

According to the calculation of the net Present Value of project A and project B, viability has been described and project B is superior to project A. In order to, enable the project opportunities are always important efficiently maximize the superiority of the project. The justification of the project is considered to identify the project's superiority and that able to maximize the future return to make idealistic solutions (Schrijver, 2018). Using the provided case study, it has been determined that the cost of capital and discount in rate for project is almost 8% and less than 8% for project b accordingly, 6% is considered. Moreover, for the US best project, a discounted rate of 8% is considered; for the USA base project, a discounted rate of almost 6% is considered.

References

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Chams, N. and García-Blandón, J., 2019. On the importance of sustainable human resource management for the adoption of sustainable development goals.Resources, Conservation and Recycling,141, pp.109-122.

Gaur, A.S., Ma, X. and Ding, Z., 2018. Home country supportiveness/unfavorableness and outward foreign direct investment from China.Journal of International Business Studies,49(3), pp.324-345.

Krammer, S.M., Strange, R. and Lashitew, A., 2018. The export performance of emerging economy firms: The influence of firm capabilities and institutional environments.International Business Review,27(1), pp.218-230.

Marchese, D., Reynolds, E., Bates, M.E., Morgan, H., Clark, S.S. and Linkov, I., 2018. Resilience and sustainability: Similarities and differences in environmental management applications.Science of the total environment,613, pp.1275-1283.

Naqshbandi, M.M. and Jasimuddin, S.M., 2018. Knowledge-oriented leadership and open innovation: Role of knowledge management capability in France-based multinationals.International Business Review,27(3), pp.701-713.

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Schrijver, N., 2018. Managing the global commons: common good or common sink?. InThe UN and the Global South, 1945 and 2015(pp. 106-121). Routledge.

Welch, C., Piekkari, R., Plakoyiannaki, E. and Paavilainen-Mäntymäki, E., 2020. Theorising from case studies: Towards a pluralist future for international business research. InResearch methods in international business(pp. 171-220). Palgrave Macmillan, Cham.

Wiedmann, T. and Lenzen, M., 2018. Environmental and social footprints of international trade.Nature Geoscience,11(5), pp.314-321.