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LEEDS METROPOLITAN UNIVERSITY LEEDS BUSINESS SCHOOL

COURSEWORK

MODULE TITLE : Management of International Business Finance TITLE OF ASSESSMENT : Final Assessment COURSE(S) : MAITF DEADLINE DATE FOR SUBMISSION BY STUDENTS : SUBMISSION LOCATION : Rose Bowl

ASSESSORS : John Foster

------------------------------------------------------------------------------------------------------Notes for Students: You are required to produce an individual report (minimum 3,000 words) as required on the attached case study. Your report should be written in your own words but you may refer to suitable sources of information where appropriate.

Yakisoba is a UK based worldwide chain of Japanese noodle restaurants. The company is owned by four partners who initially contributed 500,000 each but the main finance takes the form of bank loans secured on the restaurants. The company has over 40 restaurants in the UK, 11 in Australia, 2 in Ireland, 3 in Amsterdam and one in each of Dubai, New Zealand, Denmark and Turkey. The company wholly owns all of its UK restaurants and franchises all of its international restaurants. Yakisoba has won many awards and plaudits for its fresh food, excellent service and value for money and is probably correct in its claim to be the most popular Japanese noodle restaurant in the UK. The companys business philosophy is to provide a fast, efficient service making use of electronic ordering systems (this involves the use of hand held computers to pass customers orders directly to the kitchens). Most restaurants also operate a take-away service. The company attempts to ensure that the eating experience at every one of its noodle restaurants is as consistent and similar as possible. Minor adjustments to the menus to cater for local tastes are sometimes allowed but not encouraged. The restaurants are all modelled on ramen shops which have been popular in Japan for hundreds of years. In order to achieve a better consistency in restaurant ambience and food Yakisoba has decided to start manufacturing some its own ingredients and restaurant fixtures and fittings. It is considering the purchase of major stakes in a small noodle producer in Hong Kong and a ramen fixtures manufacturer also based in Hong Kong. Both companies would be free to continue with their current customers (and develop new ones if possible) but they would be under contract to supply all Yakisobas restaurants with their requirements. The company is also planning to establish restaurants in most major UK cities within ten years and to franchise to as many suitable countries as possible within the next five years. It would cost Yakisoba HK$75 million for the purchase of 40% stake in the Hong Kong Noodle Company and a100% stake in the ramen fixtures manufacturer. In return Yakisoba would receive 40% of the annual profits of the noodle company plus an undertakings (from both companies) to supply all the companys restaurants, at normal market price, on open account terms of 60 days. The estimated share of cash profits from both companies returned to Yakisoba in the UK in the first year of operation is estimated at HK$10 million. This is expected to increase by 25% per year for the next five years and thereafter remain steady for the foreseeable future. Yakisobas cost of capital is currently 14% but the company has decided to use a risk adjusted rate of 17% in order to evaluate the purchase of the stake in the noodle producer. (You may assume that the current HK$/ exchange rate is HK$15/ and that inflation in the UK is currently 2.5% whilst in Hong Kong it is currently 3%. Rates of inflation in Hong Kong and the UK are expected to converge and equalise in about 6 years time.

Yakisoba has not previously had a specialist Treasury Function and has recently employed you as a Finance Manager responsible for treasury issues. You have been asked to produce a report covering the following: a) An evaluation of the project to purchase the noodle producer and ramen manufacture in Hong Kong. You are required to: i) Evaluate the project using appropriate techniques. Highlight and explain any issues you may have concerning your calculations. ii) Comment upon and evaluate the companys use of 17% as the cost of capital for the project. iii) You are concerned that some of the estimates you have used may be incorrect. Evaluate, using appropriate figures, the potential effects on the viability of the project of any such inaccuracies. b) Advise the company on the desirability of developing an exchange rate risk management strategy.

c) Suggest how Yakisoba might best organise its Treasury Function in order to take full advantage of the Multinational Financial System. For this purpose you may assume that the noodles producer and the ramen fixtures manufacturer will, subject to the aforementioned restrictions, enjoy a good deal of operational independence. The franchised restaurants will have less operational independence; being subject to strict rules on menus, ingredients and equipment. However subject to the requirement to pay: An initial franchise fee A five yearly franchise fee renewal A fixed percentage of annual profits

they will still enjoy a significant degree of financial independence. You are required to: i) Identify and discuss the benefits and difficulties of centralising Yakisobas treasury system. ii) How Yakisoba might best take full advantage of its Multinational Financial System. d) Suggest how Yakisoba might best finance its proposed expansion. You are required to: i) Identify the criteria Yakisoba should consider when deciding on its future

sources of financing. ii) Advise the company on the main risks associated with its present capital structure and explain how these risks might be managed. iii) Briefly discuss how the chosen method(s) of finance might influence the cost of capital used by Yakisoba to evaluate future investments.

Marks will be allocated to each Part as follows: a) 30% b) 15% c) 25% d) 30% And within each Part marks will be allocated appropriate as follows:
Coverage of theoretical underpinnings involved* Demonstration of a critical understanding of the theoretical aspects involved* Practical application of the theoretical aspects to the case study* Evidence of additional, relevant, research Coherence and quality of report 25% 25% 25% 15% 10%

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