31/10/2009

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Table of content

Page
Contents
number
1. Introduction 7

2. An Overview of Multinational Capital Budgeting 12

3. Company Profile : Grameenphone ltd. 18

Multinational Capital Budgeting : a case study of

4. Grameenphone 23

5. Grameenphone in Bangladesh: some key points 31

6. Summary and conclusion 33

7. Bibliography 35

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CHAPTER ONE
INTRODUCTION

3
Introduction
ORIGIN

The preparation of this report is a requirement of the course on

“INTERNATIONAL TRADE AND FINANCE”. Dr. H. M. Mosarof Hossain, Associate
professor of Finance Department at Faculty of Business Studies, University
of Dhaka, who is also the course teacher of “ INTERNATIONAL TRADE AND
FINANCE”, has assigned us to choose a topic regarding insurance sector and

work on it. The topic of our report is “CAPITAL BUDGETING PROCESS by an

MULTINATIONAL CORPORATION”. This report has been assigned to the students

of BBA 14th batch.

OBJECTIVE OF THE TERM PAPER

The primary objective of this study is the partial fulfillment of the course
requirement. The objectives of this report are as follows:

To fulfill the partial requirement of the course “INTERNATIONAL

TRADE AND FINANCE” offered in BBA program.

The collateral purpose of this report is to find out the implementation of

capital budgeting process by an MNC

To build a bridge between the theoretical & practical education

The main objective of the report is to show “process of multinational

capital budgeting”.

It will also enable us to improve our skills on report writing. As

corporate executive put great value on report writing as an

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 important element in organization success, this part of the course
will prepare us to face the future challenges of corporate world.

It helps us to be familiar with the recent practices and techniques in

multinational capital budgeting and it is also a vital matter for the
business students as they are prepare themselves for corporate
world.

To meet the curiosity in this stated subject.

ORGANIZATION OF THE REPORT

The report consists of four parts. The parts that consist these reports are
following:

A brief view of multinational capital budgeting: This part shows

the definition, techniques, pictorial presentation of multinational
capital budgeting process.

Company profile : Grameenphone ltd: A brief narration of the

organization we selected for a better perception of our report.

Multinational Capital Budgeting Process: It will give a illustrated

picture of multinational capital budgeting process.

Summary and conclusion: it will presents the gist of our report.

SCOPE

Our honorable teacher assigned us to choose a multinational organization

and demonstrate their capital budgeting process. As per requirement we
choose the “Grameenphone ltd. – the leading mobile phone operator in
Bangladesh” and demonstrate the capital budgeting process used by them.
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We only clarify the subject matters which is relevant to our report
topics chosen by our group.

METHODOLOGY & SOURCES OF DATA

The information for the report was collected from both primary and
secondary sources.

Primary sources: We worked on Grameen phone ltd and coleect data

from their employees.

Secondary sources: Secondary data have been collected from various

sources like official portals, search engines, annual reports, books
and journal. Our text book “International Financial management”, by
Jeff Madura also helped us in this regard.

The data and information collected from secondary sources have been
analyzed and presented keeping relevancies with the subject matter of the
report.

LIMITATION

The major limitations encountered are:

Lack of enough time: The term paper was prepared within a very short
time considering the topics related to it. That’s why; it was not possible
to demonstrate all aspects of the report.

Insufficient data: The data required for sufficient analysis for preparing
the report could not be collected due to the insufficiency of data.

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Inconsistent data: data from different sources were quite inconsistent
which created some problems in making the report & compelled us to
verify the data diligently.
Unwillingness of the organization’s employees to reveal data and lack of
co cooperativeness with us.

Lack of experience about multinational capital budgeting process also

acted as constraints in the way of exploration on the topic.

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 CHAPTER TWO
An overview of capital budgeting

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Capital budgeting

capital budgeting is the planning process used to determine whether a firm's long term investments
such as new machinery, replacement machinery, new plants, new products, and research
development projects are worth pursuing. It is budget for major capital, or investment,
expenditures.

Many formal methods are used in capital budgeting, including the techniques such as

 Accounting rate of return

 Net present value
 Profitability index
 Internal rate of return
 Modified internal rate of return
 Equivalent annuity

These methods use the incremental cash flows from each potential investment, or project
Techniques based on accounting earnings and accounting rules are sometimes used - though
economists consider this to be improper - such as the accounting rate of return, and "return on
investment." Simplified and hybrid methods are used as well, such as payback period and discounted
payback period.

Multinational capital budgeting

Multinational corporations (MNCs) evaluate international projects by using multinational capital

budgeting, which compares the benefits and costs of these projects. Multinational capital budgeting
involves determining the project’s net present value by estimating the present value of the project’s
future cash flows and subtracting the initial outlay required for the projects. Some special
circumstances of international projects that affect the future cash flow or the discount rate used to
discount cash flow make multinational capital budgeting more complex.

Why Multinational capital budgeting

 Many international projects are irreversible and cannot be easily sold to other corporations
at a reasonable price
 Proper use of multinational capital budgeting can identify the international projects worthy
of implementation.
 It affects the profitability of a firm.
 It effect over a long time spans and inevitably affects the company’s future cost structure.
 Capital investment decision once made, are not easily reversible without much financial loss
of firm
 It involves cost and the majority of the firms have scarce capital sources.

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Subsidiary versus Parent Perspective

Multinational capital budgeting can be conducted from two perspective:



Parent’s perspective
Subsidiary perspective

The feasibility of the capital budgeting analysis can vary with the perspective because the net after-
tax cash inflows to the subsidiary can differ substantially from those to the parent. Such differences
can be due to several factors, some of which are pointed here:
 Tax differentials
 Restricted remittances
 Excessive remittances
 Exchange rate movements

A graphical representation of multinational capital budgeting

Corporate taxes paid to host

government

Retained earnings by subsidiary

Withholding tax paid to host

government

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The parent perspective is appropriate in attempting to determine whether a project will enhance
the firm’s value. Any project that create a positive net present value for the parent should enhance
shareholder wealth.

One exception to the rule of using a parent’s perspective occurs when the foreign subsidiary is not
wholly owned by the parent and the foreign project is partially financed with retained earnings of
the parent and of the foreign subsidiary. In this case the goal is to make decisions in the interests of
both groups of shareholders and not to transfer wealth from one entity to another.

throughout our report we focused deeply on parent’s perspective.

Input for multinational capital budgeting

1. Initial investment:

Funds initially invested in a project may include not only whatever is necessary to start the
project but also additional funds, such as working capital to support the project over time.
Because cash inflows will not always be sufficient to cover upcoming cash outflows, working
capital is needed throughout the projects life time.

2. Price and consumer demand:

The estimated price and demand schedules during each of the year.

3. Costs:

The variable costs(for material, labor,etc per unit have been estimated and consolidated.

4. Tax laws:

Bangladesh government imposes a 20% tax rate on income, in addition it will impose a 10%
withholding tax on any funds remitted by the subsidiary.

5. Remitted funds:

The subsidiary company sends back all the net cashflows to the parent at the end of the year.

6. Exchange rates:

The spot exchange rate of us dollar is 69.15 . subsidiary uses this exchange rate as its best
forecast of that will be exist in future.

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 7. Salvage (liquidation value):

Government will pay some amount of dollar for the sale of subsidiary to the parent.

8. Required rate of return:

Subsidiary requires a 17% return on this project.

Factors to consider in multinational capital budgeting

 Exchange rate fluctuation

The exchange rate typically change over time.

 Inflation

In this country inflation is increasing over time. It si considered in multinational capital

budgeting.

 Financing arrangement

Many foreign projects are partially financed by foreign subsidiaries. This foreign financing
influences the feasibility of a project.

 Blocked funds

The host country may block fund that the subsidiary attempts to send to the parent.

 Uncertain salvage value

When the salvage value is uncertain, the MNC may incorporate various possible outcomes for
the salvage value and estimate the NPV based on each possible outcome.

 Impact of project on prevailing cash flow

The new project has no impact on prevailing cash flows.

 Host government incentives

Foreign project proposed by MNCs may have a favorable impact on economic conditions in the
host country and are therefore encouraged by the host government.

 Real option

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 A real option is an option on specified real asset such as machinery or a facility. Some capital
budgeting projects contain real options in that they may allow opportunities to obtain or
eliminate real assets.

Adjusting Project Assessment for Risk

If an MNC is unsure of the estimated cash flows of a proposed project, it needs to in-corporate an
adjustment for this risk. Three methods are commonly used to adjust the evaluation for risk:

 Risk-adjusted discount rate

 Sensitivity analysis

 Simulation

Each method is described in turn.

Risk-Adjusted Discount Rate:

The greater the uncertainty about a project’s forecasted cash flows, the larger should be the
discount rate applied to cash flows, other thing beings equal. This risk-adjusted discount rate tends
to reduce the worth of a project by a degree that reflects the risk the project exhibits.

Sensitivity Analysis:

Once the MNC has estimated the NPV of a proposed project, it may want to consider alternative
estimates for its input variables. Sensitivity analysis can be more useful than simple point estimates
because it reassesses the project based on various circumstances that may occur.

Simulation:

Simulation can be used for a variety of tasks, including the generation of a probability distribution for
NPV based on a range of possible values for one or more input variables. Probability distributions
can be developed for all variables with uncertain future values. The final result is a distribution of
possible NPV’s that might occur for the project. The simulation provides a distribution of the possible
outcomes that may occur.

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 CHAPTER THREE
Company Profile : Grmeenphone ltd.

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 Grameenphone Limited

Type Limited
Founded 1997
Headquarter Celebration Point, Road # 113 A,
s Plot 3 & 5, Gulshan, Dhaka, Bangladesh
Key people Oddvar Hesjedal, CEO
Industry Mobile Telecommunication
Products Telephony, EDGE, GSM
Revenue 891Million USD
Net income ▲ 6,403.8 Million Taka
Employees 5052
Website www.grameenphone.com

Grameenphone (Bengali: গ্রামীণফোন), widely known as GP, is the leading

telecommunications service provider in Bangladesh. With more than 20 million subscribers
(as of June 2008), Grameenphone is the largest cellular operator in the country. It is a joint
venture enterprise between Telenor and Grameen Telecom Corporation, a non-profit sister
concern of the internationally acclaimed microfinance organization and community
development bank Grameen Bank. Telenor, the largest telecommunications company in
Norway, owns 62% shares of grameenphone and Grameen Telecom owns the remaining
38%.

Grameenphone was the first company to introduce GSM technology in Bangladesh). It also
established the first 24-hour Call Center to support its subscribers. With the slogan Stay
Close, stated goal of Grameenphone is to provide affordable telephony to the entire
population of Bangladesh.

History
The idea of providing wider mobile phone access to rural areas was originally conceived by
Iqbal Quadir, who is currently the founder and director of the Legatum Center for
Development and Entrepreneurship at MIT. He was inspired by the Grameen Bank
microcredit model and envisioned a business model where a cell phone can serve as a
source of income. After leaving his job as an investment banker in the United States, Quadir
traveled back to Bangladesh, after meeting and successfully raising money from New York
based investor and philanthropist Joshua Mailman, and worked for three years gaining

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support from various organizations including Nobel Peace Prize laureate Muhammad Yunus
of Grameen Bank and the Norwegian telephone company, Telenor. He was finally successful
in forming a consortium with Telenor and Grameen Bank to establish Grameenphone.
Quadir remained a shareholder of Grameenphone until 2004.

Grameenphone received a license for cellular phone operation in Bangladesh from the
Ministry of Posts and Telecommunications on November 28, 1996. Grameenphone started
operations on March 26, 1997, the Independence Day in Bangladesh.

Grameenphone originally offered a mobile-to-mobile connectivity (widely known as GP-GP

connection), which created a lot of enthusiasm among the users. It became the first
operator to reach the million subscriber milestone as well as ten million subscriber
milestone in Bangladesh.

Network
According to Grameenphone, it has so far invested more than BDT 10,700 crore (USD 1.6
billion) to build the network infrastructure since 1997. It has invested over BDT 3,100 crore
(USD 450 million) during the first three quarters of 2007 while BDT 2,100 crore (USD 310
million) was invested in 2006 alone.

Grameenphone has built the largest cellular network in the country with over 10,000 base
stations in more than 5700 locations. Presently, nearly 98 percent of the country's
population is within the coverage area of the Grameenphone network.

The entire Grameenphone network is also EDGE/GPRS enabled, allowing access to high-
speed Internet and data services from anywhere within the coverage area. There are
currently nearly 3 million EDGE/GPRS users in the Grameenphone network.

Products offered
Mobile Telephony

Grameenphone was the first operator to introduce the pre-paid mobile phone service in
Bangladesh in September 1999. It offers the pre-paid subscription under the name Easy
Prepaid which is currently calld "smile prepaid". Besides smile, Grameenphone also offers
a youth based mobile to mobile connectivity within Bangladesh named djuice'.

Grameenphone also offers postpaid mobile service. xplore Postpaid is the name of its post
paid service.

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Value Added Services

Grameenphone also offer non-voice services, which refer to as value-added services, or

“VAS,” to its subscribers. Its subscribers are increasingly using these non-voice services, in
particular Internet access, downloadable content and ring-back tone services, each
described in further detailbelow.
• SMS: Allows subscribers to send short text messages to other mobile users’ handset
display screens;
• VoiceSMS: Allows subscribers to send audio messages (instead of text) to other GP
subscribers.
• Web to SMS: A web-based SMS service that allows our subscribers to send SMSs to single
or multiple recipients.
• Voicemail: Enables subscribers to retrieve audio message recordings left by callers.
• MMS: Allows subscribers to send pictures, text and sound/voice in a single packet
message.
• EDGE/GPRS: Allows subscribers to use their mobile phones to access the Internet, send
and receive MMS, browse WAP and download files;
• GP World: Allows subscribers to visit wap.gpworld.com from WAP enabled phone sets to
download Poly Tones and True Tones of hit songs;
• BlackBerryTM services: Allows subscribers to use BlackBerryTM wireless services with
support e-mail, phone, Internet, instant messaging, organizer and more;
• Bull-Stock Information: Allows subscribers to receive, almost in real-time, updates on
stock prices on their mobiles.
• Instant Messenger: Allows subscribers to use PC-style instant messaging through our own
chat software.
• Multimedia Content Services: Allows content such as music, sports, news and finance and
other content to be accessible or pushed to subscribers’ mobile handsets, including instant
news updates and headlines (including News Update, Traffic Update and Cricket Alert);
• Grameenphone HealthLine: An interactive teleconference with a licensed physician that
provides medical advice and assistance to our subscribers and non-subscribers (who register
for a fee) for both emergency and non-emergency situations, 24 hours a day, seven days a
week. HealthLine was awarded the GSMA Award for “Best Use of Mobile for Social and
Economic Development” at the 3GSM World Congress in February 2007;
• Mobile Chat: A WAP-based instant messaging service that allows subscribers to engage in
online and mobile chat;
• Mobile Web: Allows subscribers with compatible mobile handsets to access the Internet;
• Pay for Me: Allows prepaid subscribers to call another subscriber even if the caller does
not have sufficient balance in his account to make the call. The intended recipient can
decide whether or not to take the call.
• Welcome Tunes: Allows subscribers to set the tunes that callers will hear when they call
• BillPay service: Power Development Board customers in Chittagong and Cox’s Bazaar and
Titas Gas Transmission and Distribution Company customers in greater Dhaka,
Maymensingh, and Comilla can pay their bills either from their handsets or at any
authorized BillPay center whether or not they have a mobile phone.

Other Services
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 Internet : Grameenphone provides internet service in its coverage area. As it has
EDGE/GPRS enabled network, any subscriber can easily access to internet through
this network. Grameenphone was the first mobile operator in Bangladesh to offer
EDGE services to its subscribers.

 BillPay : A service to enable users to pay their utility bills (Electricity, Gas etc) through
mobile.

 CellBazaar : A service to enable users sell or buy products through mobile or

internet.

 Various other services like Stock Information, Instant Messaging, SMS Based
Alerts/Services, Voice-based Services, Downloads, Music, Cricket Updates, Web SMS,
Mobile Backup etc.

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 CHAPTER FOUR
Multinational Capital Budgeting :
a case study of Grameenphone

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Background
Grameenphone, widely known as GP, is the leading telecommunications service provider in
Bangladesh. It is a joint venture enterprise between Telenor and Grameen Telecom Corporation, a
non-profit sister concern of the internationally acclaimed microfinance organization and community
development bank Grameen Bank. Telenor, the largest telecommunications company in Norway,
owns 62% shares of grameenphone and Grameen Telecom owns the remaining 38%. This foreign
subsidiary is not wholly owned by the parent and the foreign project is partially financed with
retained earnings of the parent and of the foreign subsidiary. So, Grameenphone has to balance the
interest of both parties and enhance the value of the corporation side by side.

1. Initial investment:

The parent company has invested BDT 35.8 billion in 2008 to develop the network infrastructure
including working capital. The total amount of investment in Bangladesh in Bangladesh includes funs
both from the parent and subsidiary. We are considering only the fund from the parent company
telenor. If we imposed a fixed exchange rate of $1=BDT69.2, the U.S> dollar amount the parent’s
initial investment is $517,715,112.

2. Revenue:

According to the going concern principle, the company expects to run its business for an unlimited
future period. So, to prepare a capital budgeting model for the company we consider fixed revenue
earned by the company, for the upcoming future period. The total revenue will be fixed at BDT
46,684,747,000

3. Costs and expenses:

The costs are also thought to be fixed for infinite time period. These Costs and expenses include
Operating expenses, such as direct cost of network revenue, network operation and maintenance
expenses, general and administrative expenses, selling and distribution expenses and Bad debt
expense. The estimated expenses based on present observation are BDT 12,792,566,000, BDT
2,442,553,000, BDT 5,627,680,000, BDT 6,660,418,000 and BDT 135,290,000 respectively.

4. Depreciation:

The subsidiary uses the maximum rate of depreciation allowed by Bangladesh government.

5. Taxes:

Bangladesh government will impose 45% tax rate on income. In addition it will impose a 10%
withholding tax on any fund remitted by the subsidiary to parent.

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 6. Remitted fund:

The grameeenphone ltd. Plans to send 60% of the all net cash flow at the end of each year. The
Bangladesh government promises no restrictions on the cash flows to be sent back to the parent
firm but does impose a 10% withholding tax on any funds sent to the parent, as mentioned earlier.

7. Salvage value:

As it is a subsidiary going to continue its operation for a infinite time period, it is estimated to have a
uncertain salvage value.

8. Exchange rate:

The spot exchange rate of the Bangladeshi taka is $ 0.0145. grameenphone uses the spot rate as its
best forecast of the exchange rate that will exists in future periods. Thus the forecasted exchange
rate for all future periods is $ 0.0145.

9. Required rate of return:

The Grameenphone requires a 17% return.

Analysis

The capital budgeting analysis will be conducted from the parent’s perspective, based on the
assumption that the subsidiary is intended to generate cash flows that will ultimately be passed on
the to the parent. Thus the net present value (NPV) from the parent’s perspective is based on a
comparison of the present value of the cash flows received by the parent to the initial outlay by the
parent. Since the Grameenphone ‘s parent perspective is used, the cash flows of concern are the
dollars ultimately received by the parent as a result of the project.

The required rate of return is based on the cost of capital used by the parent to make its investment,
with an adjustment for the risk of the project. For being a profitable subsidiary, the present value of
future cash flows ultimately received by the parent should exceed the parent’s initial outlay. Here a
specimen is given to illustrate the capital budgeting analysis to determine whether the
Grameenphone ltd. will be profitable in near future.

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 Capital budgeting analysis Grameenphone ltd.
Year 0 Year 1
1. Revenue
Traffic revenue BDT 46,684,747,000
Subscription revenue-postpaid 448,537,000
Connection revenue 384,660,000
Roaming revenue 386,933,000
Interconnection revenue - mobile operators 4,605,378,000
Other operating revenue 1,792,891,000
Other income, net 38,156,000
2 Total revenue BDT 54341302000
3. Operating expenses:
Direct cost of network revenue 12,792,566,000
Network operation and maintenance expenses 2,442,553,000
General and administrative expenses 5,627,680,000
Selling and distribution expenses 6,660,418,000
Bad debt expense 135,290,000
4. Depreciation and amortization 10,395,824,000
5. Total operating expenses 38,054,331,000
6 operating profit (2)-(5) 16,286,971,000
7 Finance costs, net -968,503,000
8 Loss on disposal of property, plant and equipment -101,963,000
9 Share of profit/(loss) of associate company 2,591,000
10 Profit before tax 15,219,096,000
11 Income tax expense 10,475,013,000
12 Profit for the year (10)-(11) 4,744,083,000
13 Net cash flow to subsidiary (12)+(4) 15,139,907,000
14 BDT remitted by subsidiary (60%) (13*.60) 9083944200
15 withholding tax on remitted fund (14*.10) 908394420
16 BDT remitted after withholding tax (14)-(15) 8175549780
17 initial investment by parent 3580000000
0
18 exchange rate of BDT 0.014461316
19 cash flows to parent 118229208.7
20 PV of parent cash flows (17%) 695465933.4
21 initial investment in USD 517,715,112
22 cumulative NPV 177,750,821

Calculation of net present value:

Although several capital budgeting techniques are available, a common used technique is to
estimate the cash flows and salvage value to be received by the parent and compute the NPV of the
project

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 n
CFt SVn
NPV= -IO+ ∑ +
(1+k ) (1+k )n
t
t=1

Where, IO=initial outlay (investment)

CFt = cash flow in period t

SVn = salvage value

k = required rate of return

n = lifetime of the project (number of periods)

In this case the net cash flow is discounted at the required rate of return 17% to derive the present
value at perpetuity basis. Finally the cumulative NPV is determined by estimating the present value
at a perpetuity basis and subtracting the initial investment.

NPV = -517,715,112+695465933.4

= 177,750,821

Relevant factors to consider in multinational capital budgeting of Grameenphone

The capital budgeting model of Grameenphone ignored a variety of factors that may affect the
capital budgeting analysis, such as

 Exposure to exchange rate fluctuations:

Grameenphone realizes that the exchange rate will typically change over time, but it does not know
whether the Bangladeshi taka will strengthen or weaken in the future. From the parent’s point of
view, appreciation of the Bangladeshi taka would be favourable since the Bangladeshi taka inflows
would someday be converted to more U.S. dollars. Conversely, depreciation would be unfavourable
since the weakened Bangladeshi taka would convert to fewer U.S. dollars over time.

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The table below exhibits both a weak Bangladeshi taka scenario and a strong Bangladeshi taka
scenario.

Analysis using different exchange rate scenarios: Grameenphone ltd.

Year 0 Year 1
1. BDT remitted after withholding taxes 8175549780

2. Strong BDT scenario:

Exchange rate of BDT($1 = BDT 65) 0.015384615
Cash flows to parent 125777688.9
PV of cash flows (17% discount rate) 739868758.4
Initial invest by parent 517,715,112
Cumulative NPV 222,153,646

3. Weak BDT scenario

Exchange rate of BDT($1 = BDT 65) 0.013888889
Cash flows to parent 113549302.5
PV of cash flows (17% discount rate) 667937073.5
Initial invest by parent 517,715,112
Cumulative NPV 150,221,961

NPV Graph: Sensitivity

250,000,000 analysis of the project’s
NPV to different
200,000,000
exchange rate scenarios
150,000,000 NPV
The estimated NPV is
100,000,000 highest if the Bangladeshi
taka is expected to
50,000,000 strengthen and lowest if it is
expected to weaken.
0
$1 = BDT 65 $1 = BDT69.2 $1 = BDT 72

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  Exposure to inflation:

Bangladesh has a history of facing volatile inflation rate year to year and thus can influence a
project’s net cash flows. The inflation rate of Bangladesh for following years is given.

If we analyze the table we will see the inflation rate has a naegative impact on the company’s
profitability and thus reduce NPV. Though the reduced
year inflation rate Net profit in trend of net profit also can be influeced by other
millon BDT factors such as compititors, but the strong influence of
2009 8.90% inflation rate can hadly be ignored.the joint impact of
2008 9.10% inflation and exchange rate fluctuation on a
2007 7.10% 3060 subsidiary’s net cash flows may produce a partial
2006 7% 7848 offsetting effect.even if subsidiary earnings are
2005 6% 6913 inflated, they will be deflated when converted into the
2004 5.60% 6183 parent’s home currency if subsidiary’s currency has
weakened.

 Blocked funds:

Although Bangladesh does not any restriction on foreign subsidiary’s to block funds that the
subsidiary attempts to send to the parent,to narrate the impact of blocked fund on capital
budgeting, we are to assume Bangladesh government has imposed restriction on Grameenphone on
remitting cash flows for 5 yeasr. Let us assume, Grameenphone invests the fund in marketable
securities which are expected to yield 8% annually after taxes. The following table shows the impact.

capital budgeting with blocked fund Year 0 year 5

1 FV of BDT remitted by subsidiary (FVIFA 8%,5years) 53295500621
2 withholding tax (10%) 5329550062
3 BDT remitted after withholding tax 47965950559
4 exchange rate 0.014461316
5 cash flows to parent USD 693650767.3
6 PV of parent (17%) 316304749.9
7 initial investment in USD 517,715,11
2
cumulative NPV -201,410,362

so, a blocked fund for 5 year shows a negative NPV.

25
  Host government incentives:

The telecom sector is the largest private sector infrastructure provider in Bangladesh. Regulatory
regime of the country however is still passing through a transition process. The procedural
safeguards of the legal and regulatory regimes are still being developed and, therefore, existing laws
and regulations may not be applied consistently. Instability and uncertainties relating to the
regulatory and legal environment could have a material adverse effect on mobile phone business,
financial conditions and the results of their operations. Unpredictable tax & regulatory regime, fair
allocation of frequency are still the key issues to sustain the growth of the industry.

26
 CHAPTER FIVE
Grameenphone in Bangladesh :
some key points

Grameenphone in Bangladesh: some key points

 Telecommunication service was quite inadequate, with less than1% teledensity,

when GP started in 1997.
 Undeveloped telecommunications was a major constraint and caused many
hindrances in business and the day to day lives of the people of this country, which
speeded the growth of GP.

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 Grameenphone is the first mobile phone operator in the country that converted its
status to a public limited company on 25th June 2007 in conformity with a new
Securities and Exchange Commission regulation requiring such conversion for the
high capital base companies of the country.
 Recently Grmeen phone has offered its share through IPO. It will enhance its local
fund and reduce parent’s investment.
 In near future it will have a positive impact on the subsidiary’s net present value.

28
 CHAPTER SIX
SUMMARY & CONCLUSION

Summary and findings

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After studying about the capital budgeting process of MNC and case study of
Grameenphone ltd ,we have concluded that the objective and purpose of the report have
been performed and the a practical project was made. We have learnt the process and its
application to the multinational corporation in perspective of Bangladesh. We have
identified the NPV from different sector of capital budgeting from the case. We have got
some negative aspect which provide the information to forecast the further investment
profit and to take decision about the investment.

The outcomes from the calculation of capital budgeting of a example of grameenphone are
verified from different aspects. The net present value as parent company , the result was
not satisfactory. From its cashflows and othe financial conditions we have known that the
amount of cashflows and amount of remitted revenue was not positive. So the company
should not make further investment according to this case, Or not to continue the business
as the subsidiary company.

Bibliography

1. Official Web site of GRAMEENPHONE LIMITED, www.grameenphone.com

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2. Grameenphone, Annual Report, Year of 2008,2007,2006,2005.2004.
3. Dr. H. M. Mosarof Hossain. Associate Professor, Department of
Finance,University of Dhaka.
4. Erik Aas, Managing Director of GrameenPhone,
5. Dr. Farid Ahmed , “Audit Report”, year of 2007.
6. ”International Financial Management” by Jeff Madura.
7. “Business Communication” by Lesikar.
8. Wikipedia.

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