Capital Investments in Emerging Markets
Detail each requirement.
Use the Internet to research a publicly traded manufacturing company of your choice. Review the current plans that your selected company has identified for capital investments in emerging markets. Note: You can find useful information on a company’s capital investment plans from their website and/or press releases.
Write a 5–6-page paper in which you:
1. Suggest a methodology to supplement the traditional methods for evaluating the capital investments of your selected company in the emerging markets to reduce risk. Provide a rationale for your suggested methodology.
2. Assess one way in which inflation could potentially impact planned capital investments in emerging markets and examine one (1) approach to perform an accurate evaluation of the investments. Suggest how this knowledge may impact management’s decisions.
3. Contrast the modifications you would make in evaluating the projects to increase internal capacity in the largest market in which the company currently operates with the modifications you would make in evaluating expansion projects into secondary markets. Suggest one way that this information will impact the decisions made related to expansion.
4. Examine two benefits of using sensitivity analysis in evaluating the projects for your selected company. Suggest how this approach can provide a competitive advantage for the company.
5. Use at least three quality academic resources in this assignment.
Capital Investments in Emerging Markets
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Capital Investments in Emerging Markets
Capital investment in emerging markets is one of the leading business ventures, especially for large investors such as investors in manufacturing companies. Some conventional approaches for assessing capital investments include cash payback, net present value, and internal return rate. Cash payback computes the time taken for a business to recover the initial investment cost according to cash inflows (Pergler & Rasmussen, 2014). On the other hand, the internal net of return strategy determines the net interest generated from the prospective investment by calculating the percent that will yield a discount on the business net annual cash flows until the net present value is zero. In this respect, a business must ensure that every new project or investment must yield a higher internal net return than the cost of its capital. Lastly, net present value and internal rate of return use a similar approach because they both discount their net cash flows to present values and compare the cost with the business's capital expenditure required for investment (Weygandt et al., 2016). This paper seeks to evaluate Samsung Company and its methods to complete the conventional methodologies for examining the capital investment in emergent markets.
Response 1:
In its developmental stages, Samsung dealt with various commodities, including but was not limited to fertilizers, wool, and sugar. The firm employs different tactics to supplement its conventional approaches to assessing potential opportunities for capital investments. This paper considers the company's reconnaissance/research method. Samsung.com (2019) notes that the company dispatches researchers to different markets in different countries worldwide to assess and determine the potential for investing in the country. The finding indicates that the demand for electronics and smartphones in developing countries is high (Weygandt et al., 2016). Additionally, research shows that the demand for tablets and cheaper electronic products is also higher in developing countries than their developed counterparts.
Based on the above findings, the company increases electronics, smartphones, and tablets to benefit these products in developing countries (Pergler & Rasmussen, 2014). On the contrary, the company slows the production of laptops and personal computers because of the low demand for these gadgets in developing countries compared to smartphones' need. Moreover, Samsung uses the methodology of evaluating capital investment to assess the potential for demand for a new product. For instance, Klein (2015) posits that the introduction of new technologies like the wearable Tec went through a series of feasibility tests and studies before launching them officially into the market.
The Rationale for the Methodology
The rationale for evaluating capital investment methodology helps the firm ensure that it only produces a new product to meet the demand in the world market. Additionally, the research studies help the company advance its innovation to suit the ground's actual needs (Samsung.com, 2019). For instance, the company's research experts look for gaps in technologies in the market and devise a potential electronic gadget to solve the present loophole (Kenton, 2020). This approach helps to spread the company's risks by optimally utilizing the available opportunities and market strengths.
Response 2:
Ranallo (2018) claims that inflation impacts two critical aspects of a business; discount rate and cash flow. He further notes that the discount rate and cash flow should always be balanced. Therefore, a company must match the nominal cash flow with the nominal discount rate or check the real cash flow with the actual cash discount to achieve positive results. Therefore, inflation can be altered with respect to the discount rate in the premiums, and the inflation rate should also reflect a business cash flow (Kenton, 2020). The net present value is calculated by computing the interest rate, showing the amount of risk-adjusted discount rate. Companies add the risk-adjusted discount rate by altering their current required net return. Samsung can assess its inflation by estimating the total amount of cash inflows based on its estimated cash flows.
The company's management can use escalation rates to project future inflation rates and outflows, which vary based on the cash flow aspects (Weygandt et al., 2016). The study shows that the company can obtain cash flow components when escalating prices in actual dollars. Still, the firm would have to deflate each period's costs by generating inflation rates to get real dollars. However, the management must calculate the actual cash flow ...