Additional Topics in International Capital Budgeting推荐.pdf

Chapter Chapter 16 16 Additional Topics in International Capital Budgeting iemens, the German company known for its expertise in electrical engineering and electron- Sics, has 277,000 employees outside of Germany. If its Brazilian subsidiary would like to expand its operations in anticipation of growth throughout Latin America, someone in German headquarters must decide whether the projected benefits outweigh the costs. Will the analysis be done in euros or Brazilian reals? Will it matter? This chapter addresses such questions. International capital budgeting can be done in two basic ways: either by forecasting future foreign currency cash flows and then discounting them with a foreign currency dis- count rate or by converting the foreign currency cash flows into forecasts denominated in the domestic currency and then discounting them with a domestic currency discount rate. The two values should be the same when expressed in a common currency. However, that doesn’t always happen in practice unless the two methods are used with the same implicit assump- tions. The chapter considers an international capital budgeting case that demonstrates how easy it is to get different values with the two methods for discounting foreign currency cash flows and what assumptions are required to ensure that the methods are equivalent. This chapter also discusses several important topics that extend and complement the basic international capital budgeting analysis presented in Chapter 15. In that chapter, we developed a framework for international capital budgeting using adjusted net present value (ANPV) analysis. In this chapter, we consider two alternative