Corporate Finance
Introduction
Because of the previous experience of the organization from the past years’ declination of sales, it is natural for the organization to take precautions in the next business venture. The aim for corporate social responsibility, increase in return of investments and sustainable development will remain a dream if Mineral Plc. will not create the appropriate approach for their current situation. The aim of the paper is to investigate and measure the effectiveness of corporate finance as well as the governance of the organization. Through dealing with the appropriate methods, such as computation and analysis, the paper can answer the requirements according to the needs of the organization.
Discussion
The proposed investment in Medco Republic (MR) is viable depending of the used methods. In the comparison of NPV and IRR, the first method is recognized to be better than of IRR. However, in financing, the corporate executives are more familiar in IRR because they provide useful information and this is used as a method for the proposed projects. But since there is an investment, it is therefore important to look for the benefits for its return. The NPV creates a significant result because it gives a direct measure on the dollar benefits or the foreign currency benefits, based on the present value, of the project to the firm’s shareholders. In this way, most of the finance managers preferred to use the NPV as the best single measure of profitability. On the other hand, IRR also measures profitability but it is expressed in the percentage rate of return. Many decision makers like the nonfinancial managers, prefer to reference the result of IRR because of the emphasis the method gives on the return of investment of the shareholders. NPV has a direct relationship with the Economic Value Added (EVA) which means that, when the project during the year indicated a positive NPV then over time its cumulative EVA should rise to the by the sum of the projects’ NPVs. Things will never work out this way because investors cannot determine the expected NPVs all of the firm’s projects. Still, over time positive NPVs should translate into positive EVAs, and to a positive market value added (MVA), or the access of the firm’s market value over its book value (Brigham & Gapenski, 1997).
The issues that need to cover in Corporate Social Responsibility (CSR) are the moral and ethical concerns such as the code of conduct and good governance. The company should aim for corporate social responsibility is to have an overall positive impact on society and for the sustainable development (Fonteneau, 2003). Corporate social responsibility is an essential element of present and future social policies. The strategy is to develop the multinational economic and financial groups that is needed in global market economy or firms that going through serious of internal crisis. The strategy is a replacement for many socially and ethically irresponsible practices to avoid or lessen the possibilities of bankruptcies, fraudulent actions, legal obligations that involves the issues of health and safety in the workplace, employment policies and environmental protection (Noon, 2008).
Risks are always present in dealing with business transactions. The exposure of the organization in the foreign currency risk is very evident in the international corporation because of their participation in the international trade. The impact of movements of foreign exchange rates may result to the fluctuations in exchange rates. The risk may arise from a variety of sources such as foreign currency retail accounts and retail cash transactions and services, foreign exchange trading, investments denominated in foreign currencies and investments in foreign companies. In order to reduce the risk in business transactions there should be policies that can effectively manage and control the foreign currency risks (Bank of Jamaica, 2005). This includes:
1. Statement of risk principles and objectives governing the extent to which the institution is willing to assume foreign exchange risk;
2. Explicit and prudent limits on the institutions’ exposure to foreign exchange risk; and
3. Clearly defined levels of delegation of trading authorities.
Conclusion
Due to the growth of globalization and impact of technologies and economic uncertainties, the proposals for the organization are weighed. The supporting views of the leaders in the responsive approach of increasing the profitability and increase the return to their shareholders is a great indication that the organization starts to recover. In order to gain such benefit, the organization should take advantage of the new initiatives that can support and promote the business towards achieving the corporate social responsibility.
References:
Bank of Jamaica, (2005) Standards of Sound Business Practices: Foreign Exchange Risk Management [Online] Available at: http://www.boj.org.jm/pdf/Standards-Foreign%20Exchange%20Risk%20Management.pdf [Accessed 12 August 2010].
Brigham, E., & Gapenski, L., (1997) Financial Management: Theory and Practice. The Dryden Press, 8th Ed.
Fonteneau, G., (2003) Corporate Social Responsibility: Envisioning its Social Implications, The Jus Semper Global Alliance, Living Wages North and South [Online] Available at: http://www.jussemper.org/Resources/CSRsocialimplications.pdf [Accessed 12 August 2010].
Noon, P., (2008) Corporate Social Responsibility, Negotiator’s Guide [Online] Available at: http://www.world-psi.org/ [Accessed 12 August 2010].
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