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1、CHAPTER 17Multinational Corporations and Capital Budgeting 第一页，共十七页。BASICS OF CAPITAL BUDGETINGI.BASICS OF CAPITAL BUDGETINGA. Basic Criterion: Net Present ValueB. Net Present Value Technique:1. DefinitionThe present value of future cash flows, discounted at the projects cost of capital less the ini
2、tial net cash outlay.第二页，共十七页。BASICS OF CAPITAL BUDGETING2. NPV Formula: where I0 = initial cash outlay xt= net cash flow at t k = cost of capital n = investment horizon 01(1)ntttxN P VIk 第三页，共十七页。BASICS OF CAPITAL BUDGETING3.Most important property of NPV technique:-focus on cash flows with respect
3、 to shareholder wealth4.NPV obeys value additive principle:- the NPV of a set of projects is the sum of the individual project NPV第四页，共十七页。BASICS OF CAPITAL BUDGETINGC. International Cash Flows1.Important principle when estimating: Incremental basis第五页，共十七页。BASICS OF CAPITAL BUDGETING2.Distinguish t
4、otal from incremental flows to account fora.cannibalizationb.sales creationc.opportunity costd.transfer pricinge.fees and royalties第六页，共十七页。BASICS OF CAPITAL BUDGETING3.Getting the base case correct-Rule of thumb:4.Intangible Benefitsa. Valuable learning experienceb. Broader knowledge baseG lobalC o
5、rporateG lobalC orporateIncrem ental=C ashF low-C ashF lowC ashF low sw ithP rojectW ithoutP roject第七页，共十七页。ALL-EQUITY COST OF CAPITALII.Alternative Capital-Budgeting FrameworksA.THE ALL-EQUITY COST OF CAPITAL FOR FOREIGN PROJECTSWACC sometimes awkward1. To go from the parent to the project2. Soluti
6、on: Use all equity discount rate3. To calculate: k* = rf + *( rm - rf )第八页，共十七页。ALL-EQUITY COST OF CAPITAL4. * is the all-equity beta associated with the unlevered cash flows.5. Unlevered beta obtained bywhere B* = the firms stock price beta D/E = the debt to equity ratio t = the firms marginal tax
7、*11/et D E第九页，共十七页。FOREIGN INVESTMENT ANALYSISIII. TWO ISSUES IN FOREIGN INVESTMENT ANALYSISA. Issue #1 Parent v. Project Cash Flow-the cash flows from the project may differ from those remitted to the parent1. Relevant cash flows become quite important第十页，共十七页。FOREIGN INVESTMENT ANALYSIS2.Three Sta
8、ge Approach-to simplify project evaluationa. compute subsidiarys project cash flowsb. evaluate the project to the parentc. incorporate the indirect effects第十一页，共十七页。FOREIGN INVESTMENT ANALYSIS3. Estimating Incremental Project FlowsWhat is the true profitability of the project?a.Adjust for tax effect
9、s of1.)transfer pricing2.)fees and royalties第十二页，共十七页。FOREIGN INVESTMENT ANALYSIS4.Tax Factors:determine the amount and timing of taxes paid on foreign-source income.第十三页，共十七页。FOREIGN INVESTMENT ANALYSISB. Issue #2 C.How to adjust for increased economic and political risk of project?第十四页，共十七页。FOREIG
10、N INVESTMENT ANALYSIS1. Three Methods for Economic/PoliticalRisk Adjustments:a.Shortening minimum payback periodb.Raising required rate of returnc.Adjusting cash flows第十五页，共十七页。FOREIGN INVESTMENT ANALYSIS2. Accounting for Exchange Rate and Price Changes (inflationary)Two stage procedure:a.Convert nominal foreign cash flows into home currency termsb.Discount home currency flows at domestic required rate of return.第十六页，共十七页。内容(nirng)总结CHAPTER 17。II.Alternative Capital-Budgeting Frameworks。2.Three Stage Approach。2.)fees and royalties。Risk Adjustments:。c.Adjusting cash flows第十七页，共十七页。