Marks will be awarded taking the following into consideration:

Coverage of theoretical underpinnings involved* Demonstration of a critical understanding of the theoretical aspects involved* Practical application of the theoretical aspects to the case study* Evidence of additional, relevant, research Coherence and quality of report

*The theoretical areas covered should include:

Multinational capital budgeting Explanation of the multinational financial system Use of the international financial markets Consider repatriation of profits International tax planning Management of risk - hedging Forecasting future exchange rates Calculation of after tax home cash flows Multinational working capital management International cash management Assessment of political risk

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IFM Plc is a multinational company based in France and was founded in 1947 after the second world war. The multinational corporation has a market capitalisation of 2.5 billion euros and has a gearing level of approximately 88%. IFM Plc currently turns over 60 million euros per annum in worldwide sales and profits have stabilised over the last 5 years, averaging a trading profit of approximately 1.8 million euros per annum. The company specialises in financial services to private equity companies operating in the industrial and commercial property construction and development industry. Although IFMs head office I s currently based in France, they have subsidiaries in Germany, UK, Austria, Monaco and Poland. The parent company is home to the treasury management team and Board of Directors of the company. The corporation currently operates a centralised treasury management system, operating from France. The subsidiaries have operations within their home country, offering financial services locally and throughout the Eurozone region. The company is currently undertaking 5 year strategic review for the period 2013 2018 and is looking closely at its operations to identify how it can achieve its expansion and growth objective which is a 5% increase over the next 5 years. The company is considering expansion in Asia namely China and India as there is much growth in these regions over the last few years. It has been estimated that 250 million euros will be needed to fund the proposed expansion over the next 5 years. However, the financial services industry has experienced a range of global macro-environmental forces impacting on the industry, particularly in Eurozone which has led to both increased competition and increased regulation. IMF Plc have been winding down their German subsidiary (which has been making a trading loss for the last 5 years) with a view to divesting their investment operations which are run here and specialising in other services which they offer. They have been approached by a new entrant into the market, EMF Plc who has offered 2 million euros in a 50:50 joint venture deal over 4 years. Hence the total cost of the joint venture will be 4 million euros. EMF Plc is an investment fund management company based in Germany. The company is also considering restructuring so that the parent company in France is re-domiciled to Monaco, as a large proportion of their Eurozone sales are generated there.

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IFM Plc 2011 (German Subsidiary) Book values Euros Fixed asset Investment (some of which is leased from Parent company) Working capital Total 17.0m

3.0m 20.0 m

IFM Plc 2011 (German Subsidiary) Euros Equity Debt Total 13m 7.0m 20 m

Note 1 The shareholders of IFM plc can invest their money in an alternative investment that yields a return of 12%. Interest of 7% was paid on debt. Note 2 Cost of capital projected is based on the current weighted average cost of capital (WACC). It is this rate which should be used to evaluate the joint venture (to the nearest %) The company is currently faced with TWO strategic issues; Strategic option 1 Whether to enter into the Joint Venture with EMF Plc. (There is insufficient information to make a comparison between divestment and JV, so just evaluate the JV). FDI (Joint Venture) Information The Finance Directors of both companies have come together and listed the following assumptions. IFM Finance Director, Mrs Diana Worth has asked you as the capital projects accountant to put together a report evaluating the proposed joint venture based on the following information which relates to IFM Plc only. I. II. III. The Joint venture agreement is initially set for 4 years, with the option of a company buy-out in year 4 or continuation of joint venture beyond year 4 IFM Plc will pay 60% of investment in year 0 and the remaining 40% of investment in year 1 relating to their share of the investment. Projected annual gross cash flows from the joint venture are expected to be 0.900 million Euros and 0.450 million in year 1 and are expected to increase by 15% per annum. Page 3 of 4

IV. V. VI. VII. VIII. IX. X. XI.

All sales will be generated from Eurozone and UK market The spot rate is 0.8410/ Operational costs of the subsidiary are expected to be 0.235 million euros per annum which includes 0.0258 million euros for depreciation The annual rate of inflation in Germany is expected to be 2.5% (this should be applied to operational costs only) The interest rate for UK is expected to be 2% and the rest of the Eurozone is 1%. The tax rate in Germany is currently 29% Tax will be paid on profits generated in Germany by subsidiary company A double taxation treaty exists between UK and Germany

Strategic option 2 Whether to restructure and transfer the parent company from France to Monaco. This involves moving the Parent company from France and re-domiciling to Monaco. The Finance Director has estimated that this will require net funding of (equivalent to) 5 million euros. The board have already decided on expansion across Asia but require some information on the options of sources of finance for them to review at their next board meeting. Required: Diana has asked you to write a 3,000 word consultancy report to senior management team (SMT) on the THREE strategic issues below. 1) Evaluate the proposed joint venture using financial and nonfinancial analysis. Clearly state which capital investment appraisal method you have used and it appropriateness. Clearly state any assumptions and show all workings and calculations in the appendices of your report. (50 marks) 2) Advise IFM Plc SMT on the key operational and strategic challenges that they face when considering re-domiciling the France parent company to Monaco (20 marks) 3) Clearly state what options of sources of finance the multinational corporation has to fund the proposed expansion across Asia. What factors should the company consider when deciding what sources of finance to access to fund the restructuring of the company? (30 marks) Total 100 marks Page 4 of 4