Critical Appraisal Report on Finance Activity Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Critical Appraisal Report on Finance Activity Case Solution

Critical Appraisal Report for Round 6 on Finance Activity

Introduction

This critical appraisal report attempts to analyze and make specific recommendations for the financing decisions of the ABC manufacturing company in the international markets where it is going to locate its production facilities and market its both product lines. The company has to make a range of the financing decisions which would include the dividend policy decisions, capital budgeting decisions and the decisions related to the capital structure of the debt.

The management of the company needs to determine that which source of financing is the most suitable source in each of the production locations which had been chosen by the management of the company. Moreover, this paper attempts to critically evaluate the importance of the financing decisions in the emerging markets of the world. Each of the decision of capital budgeting, capital structure and dividend policy is related to the issues of the firm and the performance of the firm and the final decisions need to be highly optimal in order to be useful to the practitioners and the customers of the company.
For example, if the firm uses an optimal capital structure decision then the value o the firm in present value terms is maximized as a result and as a result the stock price of the company appreciates. A lot of literature is available there which emphasizes and focuses upon the corporate financing decisions and their impact upon the value of the firm. Three locations have been analyzed here for making the most optimal financial decisions and then a set of recommendations have been made after performing business simulation.

Critical Review of Literature

Whenever firms establish their operations or expand the boundaries of their business in the international markets,they need to make a range of the financial decisions and these decisions must be optimal in order to derive the best performance out of the operations of the business. Whenever the firm thinks about the funding of the investment plans then the primary source for the funding of the investment plans for management is basically the internal funds of the firm. There are basically two main reasons for this. Either the cost of raising external financing is very high for the firm in the international markets or the firm does not has access to the international markets(Abor, 2005).
As a result of this, a financial hierarchy has been created for the firms under which the firms first of all seek to fund their investment plans or the production plans in the international market from their internal funds. The company’s managers or the finance managers of such firms do not look out for the external financing sources until and unless the internal funds of the company have been exhausted(Bahshs, 2008). Research has been conducted in great depth in this area and it had been found out by Mayer (1990) that there has been enough evidence found regarding the developed countries of the world and which hierarchy they follow in using the financing sources in order to fund their investment plans.
These financing choices are going to have significant impact upon the performance of the firms and therefore, optimal capital structure is maintained by the firms in order to create a high value for the firm.Along with this, the choice of the leverage does also play a critical role in the firm value maximization and the shareholder return maximization. However, the choice of leverage for a firm is not the only factor which tends to have an impact upon the corporate performance but the corporate debt maturity structure also tends to have a significant impact upon the performance of the companies which expand their business outside their domestic boundaries(Capon N., 1990).......................

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