XX Chemicals is a medium sized company. The Directors of the company have been
considering the possibility of running a project abroad. Forecasts statement of the
company’s financial position, using different exchange rate scenarios have been produced and presented to the
management of XX Chemicals

Produce a report addressed to the Directors of XX Chemical, addressing the following requirements:

a) The Directors have been considering the possibility of raising the additional funds
required for the project through rights issue. Critically examine the services that an
investment bank could provide to XX Chemicals with the raising of additional finance.

b) Recently, an internally commissioned report has shown capital budget overspends,
and the Board of XX Chemicals is considering changing the organisational structure
of the firm and set up separate treasury and finance departments, hoping that
separation of responsibilities will contribute to better capital budgeting and spending
procedures in the future.
Examine critically the differing roles and responsibilities of the new treasury
department and finance department in evaluating and implementing such a project
abroad, and the interaction of the two departments throughout the process.

c) Discuss how inflation affects the rate of return required on the investment project, and the distinction
between a real and a nominal (or ‘money terms’) approach to the evaluation of the investment project under
inflation.

 
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