Accounting management help online: Advantages of James in Indonesia

Explain four advantages that James could put forward supporting the acquisition of the coal mine Indonesia and four disadvantages that Conrad may put forward opposing the acquisition.Four advantages that James could put forward supporting the acquisition of the coal mine in Indonesia are as follows:

• According to the James, problems faced by the TCC have made the Company to refer the acquisition of the mine situated in Indonesia (Reserve Bank of Australia, 2009). The mine appears to be working well in future, and does not have any port or rail bottleneck issues and has export authorization for at least 20% more tonnage than was shipped to previous year (Lowe, 2009).
• It has been examined that mine is open cut and it might be possible to diversify its ability substantially, subject to the approval of the Indonesia Government. It is viewed that if economics of this acquisition are accurate and if the new mine works efficiently, then this purchase could be strategically significant for the TCC because it could be the first time, that the Company has had the base of offshore production.
• Another advantage is supporting the acquisition of coal mine Indonesia would lessen the dependency of the Company on domestic mines.
• According to the James, the TCC Company would have a chance to have a base of offshore production. On the other side, supporting the acquisition of the coal mine in Indonesia would increase the growth of the Company.

Four Disadvantages that Conrad may put forward opposing the acquisition are as follows:Blockage of the funds in the new venture

• Increasing competition from International mines
• Newer technology would be needed for the initiation of new mine at Indonesia.
• Expansion of the port might be hindered by the government regulation

 According to my opinion, TCC should go ahead with the acquisition of the mine in Indonesia because

• The major benefit is acquisition of the mine in Indonesia would lessen the dependence of the Company on the local mines. It could be sated that less dependence on domestic mines would encourage the Company to look for some International mines (Bernanke, Olekalns, & Frank, 2008).
• It is predicted that, the acquisition of the mine in Indonesia would be working well in future and does not impose any rail or bottle neck issues. If the new mine works efficiently then this purchase could be proved as significant for the TCC.

Question 2It is examined that, the Company has total assets of $ A 900 million, with long term debt of $ A360 million, short term debt of $ A90 million and shareholders equity of around $ A450 million (Gittins, 2009). The Company currently has 40 private shareholders. It is examined that the Company had earned a profit of around $A120 million.

There are some basic criteria which the Company needs to be fulfilled in order to become a listing Company on the ASX.

After the evaluation of listing requirements of ASX, it can be said that the TCC Company is not able to meet one of the criteria which is shareholders. It is observed from the case study that, the Company has only 40 private shareholders. In order to become a listing Company, TCC should have at least 500 shareholders. On the other side, the Company has met the other two criteria’s such as net profit and asset test. The Company has earned a profit of $A120 million in the current year which should be only $A1 million as per the ASX. The Company has the asset base of around $A900 million which should be $A2 million as per the ASX. At last it can be said that due to less number of shareholders, TCC Company is not eligible for the listing on ASX.

Listing is a procedure of conversion of private owned organization into a public owned organization whose shares may be traded on the stock exchange (Gittins, 2009).ASX may offer the Company trust and valuable access to the institutional and retail investors across the world. It is very clear that, listing on the ASX has assisted hundred and thousands of organizations to accomplish their ambitions of growth and successfully create the transition to the public ownership and raising debt with the help of public market. There are four obligations that TCC would be required to fulfill it if it was a listed company such as

• Appoint advisors – Rules should be governed how, issues of new shares should be carried out.
• Converse with ASX – Companies should immediately inform the ASX, if there is any kind of information which likely to affect the price of the share.
• Lodge and Prepare prospectus
• Apply to the list

Question 3

There are three reasons why the bank would be reluctant to increase funding at this time becauseThe bank wanted the James, to convert his potential new customers into the firm contractual commitments

• The bank was worried about the new financial risk which will be faced by the shareholders of the TCC.
• The bank was worried about what would be the profitability of the Company after the acquisition of Indonesia Mine.

It is examined that new financial risk is related with the borrowing AUD –denominated funds to purchase the new coalmine in Indonesia (Lowe, 2009). It is viewed that Australian dollar has experienced a fall, a mixture of plunging prices of the commodity, fears of the global recession and the swift decline in cash rates of Australia taking their tax on currency.  UD denominated debt instrument publicly issued in domestic market of Australia, comprising quasi-government, sovereign, collateralized and securitized securities (Dixon, & Mahony, 2008).  The effect of the appreciation of the AUD reveals the objective of an exchange rate as the buffer against the external shocks to economy. Australia is significantly open and small economy and therefore exposed to the external shocks. This comprises shifts in terms of the trade that is required to create deflationary or inflationary pressures. The rate of floating exchange has made an economy more flexible and rate of real exchange may increase whilst dispersing the worst of inflationary pressures. It is advisable to the TCC that it should take some steps in order to minimize the financial risk by exposing to the external shocks.

Question 4

Global growth is predicted to grow at the rate of around 3.5% in year 2012, then increase somewhat to around 3.6% from year 2013 -2016 and then reveal a slowdown of around 2.7% from year 2017-2025. At 3%, on an average, the global growth shall be higher as compared to the period 1980-1985 (Henry, 2010). According to my point of view, the global growth would be increased by around 4% in year 2012. One of the major challenges for global economy in the slow growth atmosphere is to increase the efficiency without losing of any job opportunities for millions of individuals who are viewing for reasonable jobs to enhance their status and living standards.

It is viewed that US economy shall grow by 2-2.3% in year 2012 as compared to 1.7% expansions in year 2011 but short of pace required to considerably lower the rate of unemployment (Reserve Bank of Australia, 2005). The importance of the global trade to US economy and world economy is not deniable. For the decade, US have made the world in field of imports and it has remained as one of the top 3 exporters.

It is observed that outlook of the China is positive but slower in comparison to the last two years. The world second greatest economy is predicted to develop at a rate of 9%. Because of the export –related economy, China is impacted by the economic slowdown in its basic partners- Europe and United States (Dixon, & Mahony, 2008). The slowdown in growth of the China is partly driven and the people of Bank of the China are predicted to tighten their monetary policies- specifically their foreign policy to maintain the inflation under the wrap. Other challenges for the Country China comprise policies to disincentives domestic savings and depend upon local demand for the growth.

Japan has experienced more than 2 decades of the economic growth and is required to face a mild contraction in year 2011 (Bernanke, Olekalns, & Frank, 2008).  The Japan country is facing with high debt and has been aggravated by devastating impacts of tsunami and earthquake of March year 2011. However, distribution channels of the Japan have been re-established faster than predicted, thereby restricting unfavorable spillovers to the trade partners. At the current time, Japan is experienced with a robust yen and weakening overseas developments. Both kinds of issues are probably to reduce the growth estimation of 2.3% for year 2012.

Inflation was a significant issue in Indonesia during the Asian crisis of year 1998 and again in 2002. It has been viewed that Asian financial crisis which started to impact the Indonesia in year 1998 became the political and economic crisis (Bernanke, Olekalns, & Frank, 2008). Initial response of the Indonesia was to raise the basic domestic rates of interest and tighten the fiscal and monetary policy. The likely effects of the high inflation on the decision to acquire the mine if inflation emerged in Indonesia again are growth will arrive at the great cost in terms of corrupt and weak institutions, severe indebtedness because of the mismanagement of financial sector, quick depletion of the natural resources of Indonesia and corruption in business elite. It can be said that depletion of the natural resources would have a major impact on the decision to acquire mine in Indonesia due to inflation.

Question 5

There are two effects that an appreciating AUD would have on a decision by TCC to invest in the Indonesia mine such as

It could be stated that appreciation of an Australian dollar would likely to increase the financial inflows in region of Australia (Afonso, & Strauch, 2003). Currency should be converted into dollars of Australia to invest something in Australia and therefore the demand for dollar enhances and rate of the exchange appreciates.  It is observed that appreciation of exchange rate considers the price of domestic service or good in relation to price of Foreign Service or good and occurred besides of current account deficits and increasing foreign debt. Historically, the economic prosperity of the Australia has been obtained from the exports of mineral and rural commodities. Extremely effective in case of production of the primary goods and with adequate valuable minerals, country Australia is able to work on its competitive edge in mining industry.  At last, it can be said that appreciating AUD offers sufficient valuable minerals and effective production of primary goods and services. These two effects provide the competitive edge to the TCC Company to invest in the Indonesia Mine. .

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