, Remittance restrictions ................................................................................................................ 42
Transfer pricing for multinationals ................................................................................................ 42
Dividend policy ................................................................................................................................ 43
Financing ........................................................................................................................................ 45
Share buy-backs.......................................................................................................................... 46
Corporate bond risks ................................................................................................................... 46
Financing options for SMEs ............................................................................................................ 47
Financial distress ............................................................................................................................ 48
Demergers and Disposals ............................................................................................................... 48
Financial Risk Management ............................................................................................................ 51
Interest Rate Risk ........................................................................................................................ 54
Foreign exchange rate risk .......................................................................................................... 56
Parity Theories ......................................................................................................................... 57
Caps, Floors, Collars ................................................................................................................... 59
Treasury and working capital management ..................................................................................... 61
Multilateral Netting Off ................................................................................................................. 62
Working capital financing ............................................................................................................. 63
Due Diligence.................................................................................................................................. 64
Assurance on business plans and forecasts.................................................................................... 69
Assurance of service providers ....................................................................................................... 70
Social and environmental audits...................................................................................................... 71
Agreed upon Procedures ................................................................................................................ 73
Corporate Governance.................................................................................................................... 74
Executive remuneration .................................................................................................................. 76
Board Structures ............................................................................................................................. 78
ETHICS........................................................................................................................................... 79
3
, Investment Appraisal
Discounting
1) Single cash flow:
1
DF = (1+r)n or use tables
2) Annuity cash flow:
1 1
AF = r (1 − (1+r)n ) or use tables
1+𝑟
Note: if the annuity is growing at a constant rate of g each year, then r becomes (1+𝑔) − 1 or
as an approximation r-g.
3) Perpetuity cash flow:
1
PF = CF x
r
1
PF (with growth) = CF(t1) x
r−g
4) Delayed perpetuity:
CFt x PF x DFt-1
5) Non-annual discount rates:
(1 + 𝑅) = (1 + 𝑟)𝑛
Where R = non-annual rate, r = annual rate, n= no. of time periods
1) NPV
Example Pro Forma
T0 T1
Operating CFs:
Sales X
Costs (X)
Net operating flows X / (X)
Tax @standard rate (X) / X
Asset flows
Purchase (X)
If money rate is
Disposal X
provided, go on. If real
*Capital allowances (cost*%*tax % or depn* tax %) X X rate is provided, it
Working Capital must be increased to
reflect inflation using
Incremental investment (-ve changes in WC (X) X
summing up to 0 at the end) (1+m) = (1+r)(1+g.
Net flows (X) X infl)
4
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