Long Term Asset and Liability Management

Assignment 4: Long Term Asset and Liability Management

Nicholas Coleman

Dr. Gary Bliss

FIN 535- International Finance

Mar 2, 2012

Abstract

In order to become a successful multinational corporation a firm must recognize and capitalize on possible joint ventures. This paper will emphasize the long term asset and liability management of Gandor Company. The paper will also examine how MNC’s can benefit from international business and projects that will restructure a particular firm’s corporate control. Gandor Company will be evaluated in order to determine its best investment and joint venture opportunities,

Gandor Company is a U.S. firm that is considering a joint venture with a Chinese firm to produce and sell DVDs. Gandor will invest $12 million in this project, which will help to finance the Chinese firm’s production. Gandor has the goal of keeping a low cost of capital to limit risk opportunities, but the lower a firms cost of capital the lower its rate of return must be. Gandor Company has a cost of capital of approximately $985,000. “Once the relevant cash flows of a proposed project are estimated, they can be discounted at the projects required rate of return.”(Madura 2010) In order for Gandor to accurately compete effectively, they must be able to benchmark themselves against their competitors. Gandor must have a rate of return that allows them to cover their cost of capital and decrease its debt at a rate that will eliminate the debt in possibly three years.

After Gandor Company conducts it capital budgeting analysis, they must determine their profitability distribution. The probability distribution of Gandor’s net present values for the joint venture is:

Summary of Scenarios

Scenario | NPV for This Scenario | Probability that This Scenario Will Occur |

Original scenario | $395,534 | 60% |

Increase in corporate income...