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1、C14 - 1CH14 Multinational Capital Budgeting(国际金融管理,英文版) Four short words sum up what has lifted most successful Four short words sum up what has lifted most successful individuals above the crowd: a little bit more. individuals above the crowd: a little bit more. -author -author -date-dateC14 - 2Cha
2、pter ObjectivesTo compare the capital budgeting analysis of an MNCs subsidiary with that of its parent;To demonstrate how multinational capital budgeting can be applied to determine whether an international project should be implemented; andTo explain how the risk of international projects can be as
3、sessed.C14 - 3Subsidiary versus Parent PerspectiveShould the capital budgeting for a multi-national project be conducted from the viewpoint of the subsidiary that will administer the project, or the parent that will provide most of the financing?The results may vary with the perspective taken becaus
4、e the net after-tax cash inflows to the parent can differ substantially from those to the subsidiary.C14 - 4Subsidiary versus Parent PerspectiveThe difference in cash inflows is due to : Tax differentialsWhat is the tax rate on remitted funds?Regulations that restrict remittancesExcessive remittance
5、sThe parent may charge its subsidiary very high administrative fees.Exchange rate movementsC14 - 5Online ApplicationFor country-specific information such as general business rules, regulations and tax rates, visit:the Price Waterhouse Coopers site at http:/,http:/ Yahoo! International Finance Center
6、 at http:/ - 6Remitting Subsidiary Earnings to the ParentAfter-Tax Cash Flows Remitted by SubsidiaryCash Flows Generated by SubsidiaryAfter-Tax Cash Flows to SubsidiaryCash Flows Remitted by SubsidiaryWithholding Tax Paid to Host GovernmentRetained Earningsby SubsidiaryCorporate Taxes Paid to Host G
7、overnmentConversion of Fundsto Parents CurrencyParentCash Flows to ParentC14 - 7A parents perspective is appropriate when evaluating a project, since any project that can create a positive net present value for the parent should enhance the firms value.However, one exception to this rule may occur w
8、hen the foreign subsidiary is not wholly owned by the parent.Subsidiary versus Parent PerspectiveC14 - 8Input for MultinationalCapital BudgetingThe following forecasts are usually required:1.Initial investment2.Consumer demand3.Product price4.Variable cost5.Fixed cost6.Project lifetime7.Salvage (liq
9、uidation) valueC14 - 9The following forecasts are usually required:Input for MultinationalCapital Budgeting9.Tax laws10.Exchange rates11.Required rate of return8.Fund-transfer restrictionsC14 - 10What is the expected economic growth rate for a particular country? Online ApplicationConsult the Countr
10、y Commercial Guides prepared by embassy staff at http:/www.usatrade.gov/website/ccg.nsf/ccghomepage?openform.Refer to the CIAs World Factbook at http:/www.odci.gov/.C14 - 11MultinationalCapital BudgetingCapital budgeting is necessary for all long-term projects that deserve consideration. One common
11、method of performing the analysis is to estimate the cash flows and salvage value to be received by the parent, and compute the net present value (NPV) of the project.C14 - 12MultinationalCapital BudgetingNPV= initial outlay n+ S S cash flow in period t t =1 (1 + k )t+ salvage value (1 + k )nk = the
12、 required rate of return on the projectn = project lifetime in terms of periodsIf NPV 0, the project can be accepted.C14 - 13Capital Budgeting Analysis Period t1. Demand(1)2. Price per unit(2)3. Total revenue(1) (2)=(3)4. Variable cost per unit(4)5. Total variable cost (1) (4)=(5)6. Annual lease exp
13、ense(6)7. Other fixed periodic expenses(7)8. Noncash expense (depreciation)(8)9. Total expenses(5)+(6)+(7)+(8)=(9)10. Before-tax earnings of subsidiary(3)(9)=(10)11. Host government taxtax rate (10)=(11)12. After-tax earnings of subsidiary(10)(11)=(12)C14 - 14Capital Budgeting Analysis Period t13. N
14、et cash flow to subsidiary (12)+(8)=(13)14. Remittance to parent(14)15. Tax on remitted fundstax rate (14)=(15)16. Remittance after withheld tax(14)(15)=(16)17. Salvage value(17)18. Exchange rate(18)19. Cash flow to parent(16) (18)+(17) (18)=(19)20. Investment by parent(20)21. Net cash flow to paren
15、t(19)(20)=(21)22. PV of net cash flow to parent(1+k) - t (21)=(22)23. Cumulative NPVS SPVs=(23)C14 - 15Factors to Consider in Multinational Capital BudgetingExchange rate fluctuations. Different scenarios should be considered together with their probability of occurrence.Inflation. Although price/co
16、st forecasting implicitly considers inflation, inflation can be quite volatile from year to year for some countries.C14 - 16Factors to Consider in Multinational Capital BudgetingFinancing arrangement. Financing costs are usually captured by the discount rate. However, many foreign projects are parti
17、ally financed by foreign subsidiaries. Blocked funds. Some countries may require that the earnings be reinvested locally for a certain period of time before they can be remitted to the parent.C14 - 17Factors to Consider in Multinational Capital BudgetingUncertain salvage value. The salvage value typ
18、ically has a significant impact on the projects NPV, and the MNC may want to compute the break-even salvage value.Impact of project on prevailing cash flows. The new investment may compete with the existing business for the same customers.Host government incentives. These should also be considered i
19、n the analysis.C14 - 18Adjusting Project Assessmentfor RiskIf an MNC is unsure of the cash flows of a proposed project, it needs to adjust its assessment for this risk.One method is to use a risk-adjusted discount rate. The greater the uncertainty, the larger the discount rate that is applied.Many c
20、omputer software packages are also available to perform sensitivity analysis and simulation.C14 - 19Impact of Multinational Capital Budgetingon an MNCs Valuenttmjtjtjk1=1 , ,1ER ECF E = ValueE (CFj,t ) = expected cash flows in currency j to be received by the U.S. parent at the end of period tE (ERj
21、,t ) = expected exchange rate at which currency j can be converted to dollars at the end of period tk= weighted average cost of capital of the parentMultinational Capital Budgeting DecisionsC14 - 20Subsidiary versus Parent PerspectiveTax DifferentialsRestricted RemittancesExcessive RemittancesExchan
22、ge Rate MovementsInput for Multinational Capital BudgetingMultinational Capital BudgetingChapter ReviewC14 - 21Chapter ReviewFactors to Consider in Multinational Capital BudgetingExchange Rate FluctuationsInflationFinancing ArrangementBlocked FundsUncertain Salvage ValueImpact of Project on Prevailing Cash FlowsHost Government IncentivesC14 - 22Chapter ReviewAdjusting Project Assessment for RiskRisk-Adjusted Discount RateSensitivity AnalysisSimulationImpact of Multinational Capital Budgeting on an MNCs Value