What could be improved and suggestion for future research

This thesis has tried to adopt a invest decision approaches to valuing the cross-border contract. Further empirical work is required to test this approaches in real business. I did a lot of assumption in research. The main problem was gaining access to the reliability data it was a major barrier.

I think that the research can be improved by the SWOT analysis of methods of the estimation the project (contract), with both strong and weak sides, opportunities and threat of each topic which are shown separately in detail.

To another hand, I had the cash flow problems in topic (2.3 Step 3). The activities of the financial manager about forecasted CF present the first several steps to create a short-term financing plan. The next step means that financial managers cover the forecasted requirements in the way possible for the firm.

First Second Third Fourth

Quarter Quarter Quarter Quarter

New borrowing:

1. Bank loan

2. Stretching payable

3. Total

Repayment:

4. Bank loan

5. Stretching payables

6. Total

7. Net new borrowing

8. Plus securities sold

9. Less securities bought

10. Total cash raised

Interest payments:

11. Bank loan

12. Stretching payables

13. Interest on securities sold

14. Net interest paid

15. Cash required for operation

16. Total cash required

Figure 4.5

In Figure 4.5 it is possible to see proximately short-term financing plan, in the top of the table possible to see that I divide the planning process into a quarter and a month. The divided in quarters plan is usually the method used by the majority of company, but if I have interest in payment which is usually calculated monthly it is better to forecast CF the same method. Other advantages of calculating the plan per moths are possibilities to delegate the same responsibility to junior managers and they will plan the cash flow on their own level, per month and the senior managers- per quarters. All levels of financial managers will take part in the processes of planning and will improve trial and error that helps them to understand the real nature of the problem the firm faces. Manager must keep on thinking about improvements.

At the same time a short-term financing plan requires the crucial calculation. Working out the plan can be delegate to the computer. Most corporations have created short-term financial planning models. All these models are usually simulation programs. Smaller companies can build the model by Excel programs. The short-term financial planning helps the company to optimize the budget.

When the managers of all level complete the last roadmap (Step 7 Decision Card) they collect crucial number of useful information. It is bringing the company extra possibilities.

Collecting the date

Figure 4.6

The company can have the possibility to make more accurate forecast and complete the plan. Even more the company can have remarkable and useful date in real time, not as accounting date after several times, for decision about short-term borrowing such as:

- Bank loan.

- Commercial Paper (CP).

a. Short-Term Notes (STN).

b. Medium-Term Notes (MTN).

The STN and MTN are very interesting financial tools, the importance of which is increased at a current period. The bank loans will be expensive, IPO only one time, but CP in this situation, in times of crisis is very interesting and cheap tools for borrowing. I think that these financial tools will be developing in Russian Federation in the nearest future.

For the future research the area of Commercial Paper (CP) would be highly topical, in other words the market share of Short-Term Note (STN) and Medium-Term Note (MTN) will increase essentially after the crisis.

CONCLUSION

1. The most important conclusion is that for the international contract estimation as invest project the methods that distinguish the time value the contract (NPV, PI and Discounted Payback Period) are the most convenient and those methods which have the forecasted cash flows base. In other words, methods which have accounting dates base might show the incorrect result of estimation.

2. The calculation of IRR shows that it is not necessary to use the contract for estimation especially in the current economical situation (higher inflation and rise-free rates). If manager is used the rules of IRR in practice the manager could reject lot of good contracts (projects).

3. The principals-agents problems could be solved by using the performance measurement indicators and methods of estimation, and the contract as the result of manager’s activities and Managers Penalty Point.

4. The dates which I receive during the estimation of each contract can be used in short-term financing planning if I summarize the dates of each single contract to company portfolio of contracts.

5. I could not find out the special standards for pharmaceutical branch with the exception of industry Beta. In my case, I calculate the industry Beta using statistic dates of countries BRIC. Unfortunately in my country there aren’t useful and systematic statistic risk data, but the industry Beta of pharmaceutical branch in BRIC country is roughly equal. It helps me to calculate it for my case. Other common rules work as usual. For example, a common known theorem MM is good works which I consider in the questions about structure of capital.

6. The best way to use the accounting dates is to use it for compeer forecaster and real results of the company, but the key factor in contract decision is the forecasted dates. They provide the decision maker with the needed information in real time.

7. The results of research can be applied in practice by using the regalement of decision (Seven Steps). This regalement can be used by senior and junior management of export-import company. I think in Russian Federation it’s very important to widely use the methods of estimation of project (contract), which is based on forecasted cash flows and methods which distinguish the time value of money especially this methods are fresh enough for Russian export-import company.

9. For the future research the area of Commercial Paper (CP) would be highly topical, in other words the market share of Short-Term Note (STN) and Medium-Term Note (MTN) will increase essentially after the crisis.

REFERENCES

Act of legislation

1.Civil Code of Russian Federation.

2. INCOTERMS (2000).

3. EC Directive on Unfair Terms in Consumer Contracts (93/13/EEC).

4. Human Right Act 1998, Great Britain.

5. UNIDROIT Principles of International Commercial Contracts (2004).

6. United Nations Convention on Contracts for the International Sale of Goods (CISG 1988).

7. Unfair Contract Terms Act 1977, Great Britain.

Books

8.“Accounting Handbook”, Fourth Edition, Joel G. Siegel, Ph.D., CPA, Queens College of the City of NY, Jae K. Shim, Ph.D., California State University, Long Beach, Barron’s, 2006.

9.“Bank Management Text and Cases”, George H.Hempel, Southern Methodist University, Donald G. Simonson, University of New Mexico, John Wiley&Sons, Inc., 1999.

10. “Business Performance Measurement Unifying Theory and Integrating Practice”, Second Edition, Edited by Andy Neely, Cambridge University Press, 2007.

11. “Competitive Advantage Creating and Sustaining Superior Performance”, Michael E.Porter, The Free Press, 1998.

12.“Corporate Finance”, Eighth Edition, Richard A. Brealey, London Business School, Stewart C. Myers, Massachusetts Institute of Technology, Franklin Allen, University of Pennsylvania, McGraw-Hill Irwin, 2006.

13.“Essentials of Investment”, Fourth Edition, Zvi Bodie, Boston University, Alex Kane, University of California, Alan J. Marcus, Boston College, McGraw-Hill Irwin, 2001.

14.“ Investments”, Fifth Edition, William F.Sharpe, Stanford University, Gordon J. Alexander, University of Minnesota, Jeffery V. Bailey, Richards&Tierney Inc., Prentice Hall International, Inc., 1995.

15. “Investment Valuation Tools and Techniques for Determinning the Value of Any Assets”, Second Edition, Aswath Damodaran, John Wiley&Sons, Inc., 2002.

16. “Fundamentals of Financial Management”, Twelve Edition, James C. Van Horne, Stanford University, John M. Wachowicz, Jr., Prentice Hall Financial Times, 2005.

17. “Options, Futures, and other Derivatives”, Sixth Edition, John C. Hull, Prentice Hall, 2006.

18. “Smarter Investing simpler Decisions for Better Results”, Tim Hale, Prentice Hall Financial Times, 2008.

19. “The Modern Corporation & Private Property”, Adolf A. Berle & Gardiner C Means, with a new introduction by Murray Weidenbaum & Mark Jensen, Ninth printing 2007, originally published in 1932 by Hacourt, Brace &World, Inc...

20. “The Six Sigma Way How GE, Motorola, and other Top Companies Are Honing Their Performance”, Peter S. Pande, Robert P. Neuman, Roland R.Gavanagh, McGraw-Hill, 2000.

21. “The Warren Buffet Way Investment Strategies if the World’s Greatest Investor”, Robert G. HagstromH Jr., John Wiley&Sons, Inc., 1995.

22. “Valuation Measuring&Managing The Value of Companies”, Third Edition, Tom Copeland, Tim Koller, Jack Murrin, John Wiley&Sons, Inc., 2000.

Articles

23. C.W. Smith, Jr.,”Economics and Ethics: The case of Salomon Brothers”, Journal of Applied Corporate Finance 5 (Summer 1992), pp.23-28.

24. E.I. Altman, “Financial Ratios and the Prediction of corporate Bankruptcy,’ Journal of Finance 23 (September 1968, pp.589-609.

25. F.Modigliani and M.H. Miller, “The Cost of Capital, Corporation Finance and the Theory of Investment,” American Economic Review 48 (June 1958), pp. 261-297.

26. E.E.Fama, “Discounting Under Uncertainty,” Journal of Business 69(October 1996), pp. 415-428.

27. H.M. Markowitz, “Portfolio Selection,” Journal of Finance 7(March 1952), pp.77-91.

28. Graham and C.Harvey, “How CFOs make capital Budgeting and capital Structure Decisions,” Journal of Applied corporate Finance, 15 (spring 2002), pp.8-23.

29. I.A. Cooper, E. Kaplanis, “Home Bias in Equity portfolios and the cost of capital for Multinational Firms,” Journal of Applied Corporate Finance 8 (fall1995), pp.95-102.

30. W.F. Sharp, “Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk,” Journal of Finance, 19 (September 1964), pp.435-442.

31. M.Porter, “What is Strategy?” Harvard business Review, (November-December 1996), pp.61-78.

32. W.F. Sharpe, “The capital Asset pricing Model: A ‘Multi-Beta’ Interpretation,” in H.Levy and M.Sanat (Eds), Financial Decision making under Uncertainty, Academic Press, NY, 1977.

Websites

33. www.bloomberg.com

34. www.bis.org

35. www.cbr.ru

36. www.duke.edu/~charvey

37. www.econ.yale.edu/~shiller

38. www.euroland.com

39. www.djindexes.com

40. www.fintools.com

41. www.finance.yahoo.com

42. www.forbes.com

43. www.fibv.com(Word Federation of Stock Exchanges)

44. www.globalfindata.com

45. www.evca.com (European Venture Capital Association)

46. www.jaxworks.com(illustration of accounting breakeven analysis)

47. www.natur-produkt.ru

48.www.pharmavestnik.ru

49. www.valueline.com

50. www.valuepro.net

51. www.quicken.com

52. www.riskmetrics.com

53. www.smartmoney.com

Appendix 1 – 7 (Simulation Model and Scenario analysis calculation) (Excel)

Appendix 1 (Excel)

Period	CF	IRR	CF	IRR	CF	IRR
	-300	11,3511%	-90	13,1545%	-30	20,3546%
	-15		-225		-315
	-45	NPV	-45	NPV		NPV
		228,964405р.		229,035873р.		244,231293р.
	WACC as Discount rate	daily rate (360)
	0,1226	0,000340556

Appendix 2 (Excel)

Period	CF	IRR	CF	IRR	CF	IRR
	-300	11,3511%	-90	13,1545%	-30	20,3546%
	-15		-225		-315
	-45	NPV	-45	NPV		NPV
		227,868507р.		228,015709р.		243,417631р.
	WACC as Discount rate	daily rate (360)
	0,2527	0,000701944

Appendix 3 (Excel)

Period	CF	IRR	CF	IRR	CF	IRR
	-300	11,3511%	-90	13,1545%	-30	20,3546%
	-15		-225		-315
	-45	NPV	-45	NPV		NPV
		228,015736р.		228,152757р.		243,526954р.
	WACC as Discount rate	daily rate (360)
	0,2352	0,000653333

Appendix 4 (Excel)

Period	CF	IRR	CF	IRR	CF	IRR
	-300	11,35%	-90	13,15%	-30	20,35%
	-15		-225		-315
	-45	NPV	-45	NPV		NPV
		227,80811741р.		227,95949544р.		243,37278837р.
		discount rate	discount rate (360)
		0,25988	0,000721889
		Contract I		Contract II		Contract III
	PI	0,632800326		0,63322082р.		0,70542837р.

Appendix 5 (Excel)

Period	CF	IRR	CF	IRR	CF	IRR
	-300	11,35%	-90	13,15%	-30	20,35%
	-15		-225		-315
	-45	NPV	-45	NPV		NPV
		227,76514402р.		227,91949420р.		243,34087783р.
		discount rate	discount rate (360)
		0,26499	0,000736083
		Contract I		Contract II		Contract III
	PI	0,632680956		0,63310971р.		0,70533588р.

Appendix 6 (Excel)

Period	CF	IRR	CF	IRR	CF	IRR
	-300	11,35%	-90	13,15%	-30	20,35%
	-15		-225		-315
	-45	NPV	-45	NPV		NPV
		227,93338168р.		228,07609704р.		243,46580352р.
		discount rate	discount rate (360)
		0,244988	0,000680522
		Contract I		Contract II		Contract III
	PI	0,633148282		0,63354471р.		0,70569798р.

Appendix 7 (Excel)

Period	CF	IRR	CF	IRR	CF	IRR
	-300	11,35%	-90	13,15%	-30	20,35%
	-15		-225		-315
	-45	NPV	-45	NPV		NPV
		227,89298511р.		228,03849394р.		243,43580728р.
		discount rate	discount rate (360)
		0,24979	0,000693861
		Contract I		Contract II		Contract III
	PI	0,63303607р.		0,63344026р.		0,70561104р.