国际金融管理ch13 Capital Budgeting in Foreign Subsidiaries.pptVIP

Capital Budgeting in Foreign Subsidiaries Chapter Objectives To compare the capital budgeting analysis of an MNC’s subsidiary with that of its parent; To demonstrate how multinational capital budgeting can be applied to determine whether an international project should be implemented; and To explain how the risk of international projects can be assessed. Subsidiary versus Parent Perspective Should 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 because the net after-tax cash inflows to the parent can differ substantially from those to the subsidiary. Subsidiary versus Parent Perspective Such differences can be due to: Tax differentials What is the tax rate on remitted funds? Regulations that restrict remittances Excessive remittances The parent may charge its subsidiary very high administrative fees. Exchange rate movements Remitting Subsidiary Earnings to the Parent Subsidiary versus Parent Perspective A parent’s perspective is appropriate when evaluating a project, since any project that can create a positive net present value for the parent should enhance the firm’s value. However, one exception to this rule occurs when the foreign subsidiary is not wholly owned by the parent. Input for MNCCapital Budgeting The following forecasts are usually required: 1. Initial investment 2. Consumer demand over time 3. Product price over time 4. Variable cost over time 5. Fixed cost over time 6. Project lifetime 7. Salvage (liquidation) value Input for MNCCapital Budgeting 9. Tax payments and credits 10. Exchange rates 11. Required rate of return MNCCapital Budgeting Capital budgeting is necessary for all long-term projects that deserve consideration. One common method of performing the analysis involves estimating the cash flows and salvage value to be received by the