Multinational
Chapter 14
Multinational Capital Budgeting
Lecture Outline
Subsidiary versus Parent Perspective Tax Differentials Restricted Remittances Excessive Remittances Exchange Rate Movements
Input for Multinational Capital Budgeting
Multinational Capital Budgeting Example Background Analysis
Factors to Consider in Multinational Capital Budgeting Exchange Rate Fluctuations Inflation Financing Arrangement Blocked Funds Uncertain Salvage Value Impact of Project on Prevailing Cash Flows Host ostHGovernment Incentives Real Options
Adjusting Project Assessment for Risk Risk-Adjusted Discount Rate Sensitivity Analysis Simulation
Chapter Theme
This chapter identifies additional considerations in multinational capital budgeting versus domestic capital budgeting. These considerations can either be explained briefly or illustrated with the use of an example.
Topics to Stimulate Class Discussion
1. Create an idea for a firm to expand its operations overseas. Provide the industry of the firm. Given this information, students should be requested to list all information that needs to be gathered in order to conduct a capital budgeting analysis.
2. How should a firm adjust the capital budgeting analysis for investment in a country where the currency is extremely volatile?
3. How should a firm adjust the capital budgeting for investment in a country where the chance of a government takeover is relatively high?
POINT/COUNTER-POINT
Should MNCs Use Forward Rates to Estimate Dollar Cash Flows of Foreign Projects?
POINT: Yes. An MNC’s parent should use the forward rate for each year in which it will receive net cash flows in a foreign currency. The forward rate is market-determined and serves as a useful forecast for future years.
COUNTER-POINT: No. An MNC should use its own forecasts for each year in which it will receive net cash flows in a foreign currency. If the forward rates for future
Multinational Capital Budgeting
Lecture Outline
Subsidiary versus Parent Perspective Tax Differentials Restricted Remittances Excessive Remittances Exchange Rate Movements
Input for Multinational Capital Budgeting
Multinational Capital Budgeting Example Background Analysis
Factors to Consider in Multinational Capital Budgeting Exchange Rate Fluctuations Inflation Financing Arrangement Blocked Funds Uncertain Salvage Value Impact of Project on Prevailing Cash Flows Host ostHGovernment Incentives Real Options
Adjusting Project Assessment for Risk Risk-Adjusted Discount Rate Sensitivity Analysis Simulation
Chapter Theme
This chapter identifies additional considerations in multinational capital budgeting versus domestic capital budgeting. These considerations can either be explained briefly or illustrated with the use of an example.
Topics to Stimulate Class Discussion
1. Create an idea for a firm to expand its operations overseas. Provide the industry of the firm. Given this information, students should be requested to list all information that needs to be gathered in order to conduct a capital budgeting analysis.
2. How should a firm adjust the capital budgeting analysis for investment in a country where the currency is extremely volatile?
3. How should a firm adjust the capital budgeting for investment in a country where the chance of a government takeover is relatively high?
POINT/COUNTER-POINT
Should MNCs Use Forward Rates to Estimate Dollar Cash Flows of Foreign Projects?
POINT: Yes. An MNC’s parent should use the forward rate for each year in which it will receive net cash flows in a foreign currency. The forward rate is market-determined and serves as a useful forecast for future years.
COUNTER-POINT: No. An MNC should use its own forecasts for each year in which it will receive net cash flows in a foreign currency. If the forward rates for future