Multinational Capital Budgeting C H A P T E R 14 Multinational Capital Budgeting

Chapter Overview A. Subsidiary versus Parent Perspective B. Input for the Multinational Capital Budgeting C. Factors to Consider in Multinational Capital Budgeting D. Adjusting Project Assessment for Risk

Chapter 14 Objectives This chapter will: A. Compare the capital budgeting analysis of an MNC’s subsidiary versus its parent B. Demonstrate how multinational capital building can be applied to determine whether an international project should be implemented C. Explain how the risk of international projects can be assessed.

A. Subsidiary versus Parent Perspective 1. Tax Differentials 2. Restricted Remittances 3. Excessive Remittances 4. Exchange Rate Movements 5. Summary of Factors

Process of Remitting Subsidiary Earnings to Parent 14.1

B. Input for the Multinational Capital Budgeting 1. Economic and Financial Characteristics Involved a. Initial Investment b. Price and Consumer Demand c. Costs d. Tax Laws e. Remitted Funds f. Exchange Rates g. Salvage Value h. Required Rate of Return

C. Factors to Consider in Multinational Capital Budgeting 1. Exchange Rate Fluctuations 2. Inflation

14.4 Sensitivity of the Project’s NPV to Different Exchange Rate Scenarios: Spartan, Inc. 14.4

C. Factors to Consider in Multinational Capital Budgeting 3. Financing Arrangement a. Subsidiary Financing b. Parent Financing c. Comparison of Parent versus Subsidiary Financing d. Financing with Other Subsidiaries’ Retained Earnings

C. Factors to Consider in Multinational Capital Budgeting 4. Blocked Funds 5. Uncertain Salvage Value 6. Impact of Project on Prevailing Cash Flows 7. Host Government Incentives 8. Real Options

D. Adjusting Project Assessment for Risk 1. Risk-Adjusted Discount Rate 2. Sensitivity Analysis 3. Simulation