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1、Multinational Financial Management（跨国公司财务管理）ch17 Multinational Corporations and Capital BudgetingBASICS 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
2、 of capital less the initial net cash outlay.BASICS OF CAPITAL BUDGETING2.NPV Formula:where I0=initial cash outlay xt=net cash flow at t k=cost of capital n=investment horizon BASICS OF CAPITAL BUDGETING3.Most important property of NPV technique:-focus on cash flows with respect to shareholder wealt
3、h4.NPV obeys value additive principle:-the NPV of a set of projects is the sum of the individual project NPVBASICS OF CAPITAL BUDGETINGC.International Cash Flows1.Important principle when estimating:Incremental basisALL-EQUITY COST OF CAPITALII.Alternative Capital-Budgeting FrameworksA.THE ALL-EQUIT
4、Y COST OF CAPITAL FOR FOREIGN PROJECTSWACC sometimes awkward1.To go from the parent to the project2.Solution:Use all equity discount rate3.To calculate:k*=rf +*(rm -rf)ALL-EQUITY COST OF CAPITAL4.*is the all-equity beta associated with the unlevered cash flows.5.Unlevered beta obtained bywhere B*=th
5、e firms stock price beta D/E =the debt to equity ratio t =the firms marginal tax 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
6、 importantFOREIGN INVESTMENT ANALYSIS2.Three Stage Approach-to simplify project pute subsidiarys project cash flowsb.evaluate the project to the parentc.incorporate the indirect effectsFOREIGN INVESTMENT ANALYSIS3.Estimating Incremental Project FlowsWhat is the true profitability of the project?a.Ad
7、just for tax effects of1.)transfer pricing2.)fees and royaltiesFOREIGN INVESTMENT ANALYSIS4.Tax Factors:determine the amount and timing of taxes paid on foreign-source income.FOREIGN INVESTMENT ANALYSISB.Issue#2 C.How to adjust for increased economic and political risk of project?FOREIGN INVESTMENT
8、ANALYSIS1.Three Methods for Economic/PoliticalRisk Adjustments:a.Shortening minimum payback periodb.Raising required rate of returnc.Adjusting cash flowsFOREIGN 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.