...1. What is the nature of the international business environments Harley faces? What types of risks does the firm face? The nature of the international business environments Harley faces are complex and varies due to cultural and regional needs of the diverse markets it competes in. This is shown by the differences of the sales mix in U.S. and Europe as revealed in exhibit 1 of the case. For example, in 2006, custom models accounted for 47.4% in U.S., whereas it accounted for 13.4% in Europe. In the U.S., other sales of models based on different criteria such as performance, touring, and standard accounted for 15.1%, 35.5%, and 2.1% respectively. Europeans have different preferences however. Performance, touring, and standard accounted for 41.4%, 26.1%, and 19.2% respectively. The reason Harley faces such diversification is clearly due to customer preferences and market demands. According to chapter 1 lecture slides, I believe that all four types of risks in international business are present: (1) Cross-cultural Risk: Harley operates in different facilities in the U.S., Brazil and Australia. Potential growth markets include Canada, Japan, Australia, Latin America (Brazil), India, and China. There are many cultural differences in languages, lifestyles, customs, and religion of the various countries. These differences may lead to inappropriate business strategies and ineffective relations with customers. However, understanding the different markets would be beneficial to Harley...
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...other markets to expand. Corporate risk deals with being able to manage the different types of risk in an organization. Some key factors of risk can include; identification issues, accounting issues, financial impacts towards the organization, being able to allocate resources for the organization, as well as maintaining policies and procedures. Risk Identification When undertaking new initiatives there is always a certain amount of risk involved. Identifying these risks may perhaps decrease time, save the quality of the products, and increase customer satisfaction. Risk definitely happens in everyday life. Many businesses and executives cannot accept risk especially when making business decisions. It is good to identify different types of risk so that organizations like Wal-Mart have different opportunities and ideas to decrease the different threats that organizations may face. Corporate risk management is the ability to handle the risks that come towards an organization and determining how to handle the risk and determining the levels of risk. Taken into consideration the economic environment the most important risks are the finances of an organization. Wal-Mart does not want to lose money so the business needs to be careful and to extensively examine each project that can impact the organization. The relevance of risk that can be identified primarily deal with a variety of levels that the type of risk falls into. Corporate risk is a big concern in many organizations...
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...1. What is the nature of international business environment Harley faces? What types of risk does the firm face? The nature of international business environment Harley faces is domestic and international with complexly and risk involve. This is clearly shown in the variation of sales in its two major markets, one at home in the U.S and the other in Europe. As shown in the in the graph chart in 2006, Custom models accounted for 47.4% in the U.S while only 13.4% in the European market. Other sales based on style of bikes are in the U.S performance 15.1%, touring 35.5%, and standard 2.1% while its other market sales in Europe were performance 41.4%, touring 26.1%, and standard 19.2%. The reason Harley faces such diversification is clearly due to consumer preferences. The European markets desires performance bikes made for the open roads and high speed demands. The four main risk which are cross-cultural risk, country risk, currency risk, and commercial risk. 2. How can Harley benefit from expanding abroad? What type of advantages can the firm obtain? What advantages acquired abroad can help Harley improve in its home market? Harley’s can benefit from expanding abroad because it will allow them to separate their business from domestic economic slumps, but also diversifying their product to adjust with the demands of the consumers. The advantages of expanding international sales include maintaining a more sensible business archetype. By increasing internationally Harley can widen...
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...looked at some of the techniques a financial manager can use in identifying the cost of various forms of capital and choosing projects that are “profitable” to the firm. Based on our earlier discussions, we know there is a significant relationship between a firm’s cost of capital and capital budgeting decisions. In order to decide whether a project is desirable, a financial manager uses the cost of capital the firm faces to determine the project’s net present value; or compare the project’s IRR with the cost of capital. In addition, we also know that the cost of capital a firm faces might not be constant (i.e. the firm’s MCC schedule might experience several break points). In that case, how does a firm decide what is the appropriate cost of capital? And how does it decide the optimal budget it needs for project investments? In order to answer those questions, we need to first look at a firm’s investment opportunity schedule (IOS). The Investment Opportunity Schedule (IOS) The concept behind the IOS is very similar to that of the MCC schedule. The MCC schedule represents the cost of capital faced by the firm (ranking from the cheapest to the most expensive) while the IOS represents the projects that are available to the firm (ranking from the most desirable to the least desirable). In order to construct the IOS, the firm needs to first estimate the IRR of each of the project it is considering. Once that is accomplished, the financial manager can plot the IOS, which is a chart...
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...Case Question 1. What is the nature of international business environment Harley faces? What types of risk does the firm face? The nature of international business environment Harley faces is domestic and international with complexly and risk involve. This is clearly shown in the variation of sales in its two major markets, one at home in the U.S and the other in Europe. As shown in the in the graph chart in 2006, Custom models accounted for 47.4% in the U.S while only 13.4% in the European market. Other sales based on style of bikes are in the U.S performance 15.1%, touring 35.5%, and standard 2.1% while its other market sales in Europe were performance 41.4%, touring 26.1%, and standard 19.2%. The reason Harley faces such diversification is clearly due to consumer preferences. The European markets desires performance bikes made for the open roads and high speed demands. The four main risk which are cross-cultural risk, country risk, currency risk, and commercial risk. 2. How can Harley benefit from expanding abroad? What type of advantages can the firm obtain? What advantages acquired abroad can help Harley improve in its home market? Harley’s can benefit from expanding abroad because it will allow them to separate their business from domestic economic slumps, but also diversifying their product to adjust with the demands of the consumers. The advantages of expanding international sales include maintaining a more sensible business archetype. By increasing internationally...
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...calculate the coefficient of variation to compare the risk of both projects, see pp. 542. Chapter 14: a. Discussion Questions: 2 and 11. b. Problems: 8*, 10**, and 12. * Remember the firm has a limited capital budget of $2.4 million for the coming year. In other words, the firm faces the capital rationing, see pp. 589-592. Use the profitability index as it s investment criterion. ** Please use the dividend valuation model, pp. 594-595. “A share of the common stock of the company currently sells for eight times current dividends.” Chapter 13 Discussion Questions #13 – Why does an importer usually face a foreign-exchange risk? How can the importer hedge the foreign-exchange risk by purchasing the foreign-currency today to have it by the time the foreign-currency payment is due? Why does hedging usually take place with forward contract? Investing in foreign securities gives rise to a foreign-exchange risk because the foreign currency can depreciate or decrease in value during the time of the investment (Salvatore, 2007, p. 562). Hedging refers to the covering of a foreign-exchange risk through a forward contract (Salvatore, 2007, p. 562). Salvatore (2007) describes forward contracting as “an agreement to purchase or sell a specific amount of a foreign currency at a rate specified today for delivery at a specific date (p. 562). Hedging is necessary to avoid foreign-exchange risk. #15 – How does the adverse selection problem arise in the credit-card...
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...Political Risk Political risk is a type of risk faced by investors, corporations, and governments. It is a risk that can be understood and managed with reasoned foresight and investment. Broadly, political risk refers to the complications businesses and governments may face as a result of what are commonly referred to as political decisions—or “any political change that alters the expected outcome and value of a given economic action by changing the probability of achieving business objectives.”.[1] Political risk faced by firms can be defined as “the risk of a strategic, financial, or personnel loss for a firm because of such nonmarket factors as macroeconomic and social policies (fiscal, monetary, trade, investment, industrial, income, labour, and developmental), or events related to political instability (terrorism, riots, coups, civil war, and insurrection).”[2] Portfolio investors may face similar financial losses. Moreover, governments may face complications in their ability to execute diplomatic, military or other initiatives as a result of political risk. A low level of political risk in a given country does not necessarily correspond to a high degree of political freedom. Indeed, some of the more stable states are also the most authoritarian. Long-term assessments of political risk must account for the danger that a politically oppressive environment is only stable as long as top-down control is maintained and citizens prevented from a free exchange of ideas and goods...
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...International School of Management Identifying and Managing Risks in Professional Services Firms & The Novo Group Incorporated Candidate: Maria Nicholas-Groves Date: August 15, 2013 Executive Summary Identifying, measuring and managing risks are critical for all businesses today. There is substantial research of applying risk management within manufacturing companies, yet limited information regarding services firms and their need to manage risk effectively. Nevertheless, service businesses account for 70% of employment and 70% of domestic product in Western countries (Hollman, 1991). Given the substantial impact this industry has on Western States, it is critical companies understand how to apply risk concepts and become capable of dealing with their risks appropriately and cost effectively. This paper will uncover the core risks professional services firms’ face. It will overlay this assessment on a micro level, reviewing The Novo Group, Incorporated. This is a professional services firm specializing in recruiting professional talent in the United States. In this intersection of risk, the paper will attempt to measure the risk, its impact, and options to manage these possibilities. Professional Services in the United States of America Services are a critical contributor to the United States’ gross domestic product and are responsible for the livelihood of thousands...
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...PROBABILISTIC APPROACHES: SCENARIO ANALYSIS, DECISION TREES AND SIMULATIONS In the last chapter, we examined ways in which we can adjust the value of a risky asset for its risk. Notwithstanding their popularity, all of the approaches share a common theme. The riskiness of an asset is encapsulated in one number – a higher discount rate, lower cash flows or a discount to the value – and the computation almost always requires us to make assumptions (often unrealistic) about the nature of risk. In this chapter, we consider a different and potentially more informative way of assessing and presenting the risk in an investment. Rather than compute an expected value for an asset that that tries to reflect the different possible outcomes, we could provide information on what the value of the asset will be under each outcome or at least a subset of outcomes. We will begin this section by looking at the simplest version which is an analysis of an asset’s value under three scenarios – a best case, most likely case and worse case – and then extend the discussion to look at scenario analysis more generally. We will move on to examine the use of decision trees, a more complete approach to dealing with discrete risk. We will close the chapter by evaluating Monte Carlo simulations, the most complete approach of assessing risk across the spectrum. Scenario Analysis The expected cash flows that we use to value risky assets can be estimated in one or two ways. They can represent a probability-weighted...
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...Hello Instructor Strandine and Class, I do apologize for posting so late, I have been very sick, but doing better. What kinds of risks does a firm like Amazon.com face with respect to safeguarding its assets? Amazon faces numerous risks in regards to safeguarding their assets. Some of these risks included are competition, loss of data and/or vendors, lack of redundancy and system interruption, inventory risk, government laws and regulations, and government contracts and related procurement regulations. (Amazon, 2015). What types of controls do you think it already has in place to minimize these risks? The controls I believe Amazon already has in place are fulling consumer demands, keeping up with the latest technologies (as to keep up with the competition) and following all government laws and regulations. Are any specific controls mentioned in the annual report? Stated in Amazon’s annual report was that their cash equivalent and marketable fixed income securities are considered “available to sell” which means that Amazon can transform their assets into cash immediately to maintain their company. (Amazon, 2015). What depreciation method does Amazon use for property and equipment? Amazon uses the Straight-line Depreciation Method. (Amazon, 2015). What is the range of useful lives for buildings and for fixtures and equipment? “Over the estimated useful lives of the assets (generally the lesser of 40 years or the remaining life of the underlying...
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...1. How does PPLS create value for its customers? What are the critical risks that it has to manage well? 2. How did the pre-1995 commission formula work? Why do you think the company changed its policy? 3. Based on the post-1995 commission formula and information in the case on pricing and commission rates, calculate the cash inflows for premiums and cash outflows for commissions for years 1 to 3 that would arise from the sign-up of 1000 new members at the beginning of year 1. Assume that: (a) actual member renewal rates are 75% for both years 2 and 3, and (b) 25% of recoverable commission advances in each of years 2 and 3 are expected to prove uncollectible. 4. How does Pre-Paid Legal account for the transactions described in question 3? Set up Commission Advance (gross), Commission Expense, Allowance, and Cash T Accounts, and trace the flows in and out of these accounts for years 1 to 3. 5. Do you agree with Fortune’s criticism of PPLS’s method of reporting for commissions? Why or why not? 6. What actions could PPLS’s management take to reduce the unease among key investors about the firm’s accounting and its business model? How does PPLS add value for its members? Individuals can always hire attorneys as they require legal services. However, PPLS provides users with several additional benefits: Lower cost. By using its leverage with attorneys, PPLS is able to negotiate lower legal fees than individuals would be able to achieve by themselves. PPLS manages this...
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...a. Why is corporate finance important to all managers? Corporate finance provides the skills managers need to: (1) identify and select the corporate strategies and individual projects that add value to their firm; and (2) forecast the funding requirements of their company and devise strategies for acquiring those funds. b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form. The three main forms of business organization are sole proprietorships, partnerships, and corporations. Several hybrid forms are also gaining popularity. These include the limited partnership, the limited liability partnership, the professional corporation, and the S corporation. The proprietorship has three important advantages: (1) it is easily and inexpensively formed, (2) it is subject to few government regulations, and (3) the business pays no corporate income taxes. The proprietorship also has three important limitations: (1) it is difficult for a proprietorship to obtain large sums of capital; (2) the proprietor has unlimited personal liability for the business’s debts, and (3) the life of a business organized as a proprietorship is limited to the life of the individual who created it. The major advantage of a partnership is its low cost and ease of formation. The disadvantages are similar to those associated with proprietorships which are unlimited liability, limited life of the...
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...Name: Ahmed Helmy Abd El-Hady ID :12105613 Q1- What is the nature of the international business environments Harley faces? What types of risks does the firm face? 1st Cross-cultural Risk • Operates in different facilities in the U.S., Brazil and Australia. • Potential growth markets include Canada, Japan, Australia, Latin America (Brazil). • Many cultural differences in languages, lifestyles, customs, and religion of the various countries. • Lead to inappropriate business strategies and ineffective relations with customers. 2nd Country Risk (also known as political risk) • Chinese Market- With the opening of its third dealership in China during 2008, Harley faced a large and potentially risky market. • Differences in the country’s political, legal, and economic systems may adversely impact firm profitability. • Government intervention: restricts market access; and limits the amount of earned income that firms may expel from foreign operations. Q2- How can Harley benefit from expanding abroad? What type of advantages can the firm obtain? What advantages acquired abroad can help Harley improve in its home market? 1st Benefit from expanding abroad Diverse of product • • Adjust with the demands of the consumers. Allow company to separate business from domestic economic slumps. 2nd Advantage that can Harley obtains Loses can be reduced • • Diversifying the business in different areas. The loses faced by one market can be cover by the...
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...companies offer loans of small denomination to consumers and since they have quite high credit rating, they are able to borrow at a low interest rate from other lending institutions and therefore are able to offer their loans at reasonable rates. They are different from banks in that they provide loans and credit facilities to consumers and firms who otherwise have a non-sufficient credit record to secure loans from banks; however the interest rate they charge is higher than banks. The emergence of finance companies was mainly due to bank’s refusal to lend out small loans to firms and consumers. Finance companies has since then evolved to provide both sales-finance and consumer loan services. Sales-finance companies mainly operate by purchasing unpaid customer accounts at a discount from sales firms, and collecting payments due from the customers on a periodic basis therefore providing installment financing to consumers and firms. Finance companies generally tend to interest rate sensitive, i.e., any increase or decrease in the market interest rates have high influence in their profitability. Types of finance companies The three major types of finance companies are –...
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...pursued by smaller companies, especially if international or transaction costs, such as the cost of negotiating and transferring information, are high. When MNCs make an initial investment in the form of a wholly owned subsidiary in a foreign country, it is sometimes referred to as “greenfield” or de novo (new) investment. The primary reason for the use of wholly owned subsidiaries is a desire by the MNC for total control and the belief that managerial efficiency will be better without outside partners. Due to the sole ownership, it has been found that profits can be higher with this venture and that there are clearer communications and shared visions. However, there are some drawbacks. Typically, wholly owned subsidiaries face a high risk with such a large investment in one area and are not very efficient with entering multiple countries or markets. This can also lead to low international integration or multinational involvement. Furthermore, host countries often feel that the MNC is trying to gain economic control by setting up local operations but refusing to include local partners. Some countries are concerned that the MNC will drive out local enterprises as opposed to helping develop them. In dealing with these concerns, many newly developing countries prohibit wholly owned subsidiaries. Another drawback is that home-country unions sometimes oppose the creation of foreign subsidiaries, which they see as an attempt to “export jobs,” particularly when the MNC exports...
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