The Benefits of Investment in the Medco Republic

Using investment parameters such as the Net Present Value (NPV) and the Internal Rate of Return (IRR), the report will analyze whether the investment in the Medco Republic is worth undertaking considering the risks. At the end of the report, a conclusion and corresponding recommendation will be made to guide Mineral PLC in its investment decision that it has to make soon.

Aside from the analysis of the investment’s viability, this report will also discuss the concept of corporate social responsibility (CSR), and the pros and cons of such endeavors if undertaken by the company. Certain quarters are advocating CSR, while an opposing opinion suggests that it may be a useless idea given the prevailing factors in the Medco Republic.

And given the cross-country, trans-national nature of the investment, an attempt to analyze the foreign currency exchange risk associated with such an investment will also be undertaken. Hopefully, towards the end of the report, the financial director of the company will be enlightened and be able to discern the best option for the company to take, considering the bottom line requirements of shareholders: increase company profitability and increase returns to shareholders.

While the data available from the case cover only the projected first five years of operations, the cash flow was projected to cover a ten-year operation in order to ascertain the viability of the project. Computing the NPV and the IRR on a five-year projection, given the huge initial investments, may not be able to give a realistic result as accumulated cash flow will only become positive towards the end of the first five year period. Several assumptions were held in order to make possible the ten-year projection.

Net present value, or simply NPV, is defined simply as the “difference between the present value of cash inflows and the present value of cash outflows”. NPV has been described further as a parameter being “used in capital budgeting to analyze the profitability of an investment or project”.&nbsp.