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Essay / Research Paper Abstract
A 4 page continuation of considerations that Acme must make prior to going forward with its international expansion, specifically in assessing the value of the new venture in terms of return on equity and internal rate of return. There is always a degree of uncertainty in new ventures. ROE can provide an indication of whether the venture will be profitable and to what degree it will be profitable. IRR provides a means of "weeding out" investment decisions that cannot be profitable at acceptable levels. The paper also discusses assessing ROE using the DuPont Identity. Bibliography lists 6 sources.
Page Count:
4 pages (~225 words per page)
File: CC6_KSfinGlobChoice.rtf
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Unformatted sample text from the term paper:
Acme is a "multi-billion dollar public MNE ... incorporated in the U.S." and currently is planning to expand to become a truly global company. It will be making
a greenfield investment for its expansion. Return on Equity (ROE) and Internal Rate of Return (IRR) are two concepts that Acme can use to judge the potential value of
its expansion. The purpose here is to explain why this is so. Return on Equity ROE is a profitability ratio found
by dividing net income by total equity. Equity is what is at risk in any venture, of course; net income is the result of subtracting all operational expenses from
total revenues gained as a result of business activity. Net income is, in essence, the organizations pre-tax reward for conducting its business. In the case of a publicly
traded company such as Acme, it is also the figure on which investors payment is based. The company pays investors for the use of their capital they provide in
the form of stock purchases. Thus ROE is an indication of how much the organization makes relative to what is invested. Management
seeks a favorable ROE to keep the business profitable and growing; investors seek a favorable ROE as an indicator that not only they will receive some reward for making their
capital available to the company, they also can be reasonably certain of not losing the capital invested. In its simplest form, ROE results
from Net Income ? Total Equity. It also can be determined in the following manner: Net Income x Sales x Assets Sales Assets Total Equity
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