2. Introduction
DEFINITION
It is also known by a variety of names such as
internal company analysis, profiling the organization
capability or resources, audit position and strategic
advantage analysis.
• Business competition within and outside the country,
overall performances and its and weakness.
3. Steps in International Project
Appraisal
Identifying strategic factors
Determining the importance of factors
Determining strength and weakness
Constructing strategic advantage profile of a
firm
4. Techniques in International Project
Appraisal
DCF Techniques
Net present value
Internal rate of return
NON- DCF Techniques
• Pay back period
• Accounting rate of return
6. Why International Project Appraisal?
• Economic of scale
• Comparative advantage
• Vertical diversification
• General diversification
• Attacking foreign competition
• Product life cycle
• Non transferable knowledge
7. Review of NPV approach
• Net present value or NPV is a discounting
technique of capital budgeting wherein the
profitability of investment is measured through
the difference between the cash inflows
generated out of the cash outflows or the
investments made in the projects
• ACCEPT – If the NPV is project is positive
8. Merits of NPV
• It takes into consideration the time value of
money
• It measures the profitability of the entire
project by considering the profits throughout
its life
• It is easy too alter the discount rate, by just
changing the value of denominator
• This method is suitable for mutually exclusive
projects
9. Demerits of NPV
• The forecasting of each flows is difficult
because of several uncertain involved in the
operations of the firm
• It is difficult to compute the discount rate
precisely. And this is one of the crucial factors
in the computation of net present value as with
the change in the discount factor the NPV
results also changes
10. Adjusted Present Value
• Adjusted Present Value (APV) is used for the
valuation of projects and companies. It takes
the net present value (NPV), plus the present
value of debt financing costs, which include
interest tax shields, costs of debt issuance,
costs of financial distress, financial subsidies,
etc.
11. Application of APV
• APV is an appropriate measure of value for
many situations, including:
• Highly leveraged firms or leveraged buyouts
(LBOs)
• Financially distressed firms
• Firms with dynamic capital structures
12. Components of Adjusted Present Value
• Unlevered firm value – unlevered cash flow
are discounted at the unlevered cost of capital
which can be calculated with the capital asset
pricing model (CAPM)
• Net Effect of Debt – It calculate the present
value of debt financing assumptions
