Foreign Subsidiary Investment Plan Case: Multinational Capital Budgeting China & Australia

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Foreign Subsidiary Investment Plan Case: Multinational Capital Budgeting China & Australia Hypothetical Incorporated MBA AF 626 Fall 2011 International Financial Management Professor XX XX XX XX XX Table of Contents PART I – Analysis: Australia vs. China A. Country Analysis 1. Economic Environment 3 2. Social Environment 10 3. Political Environment 12 B. Industry Analysis 1. Aluminum Industry in Australia 17 2. Airline Industry in China 18 PART II-Capital Budget Analysis 1. Weighted Average Cost of Capital 19 2. Net Present Value 20 3. Scenario Analysis 21 PART III – Conclusion: Investment Decision 23 References…show more content…
These surpluses have been used primarily to retire government debt and Australia’s budget deficit was more than 2% in 2009-10. Australia reported a budget deficit equivalent to 4.3 percent of the GDP for fiscal year’s 2009-10 (TradingEconomics, 2011), indicating Australia’s fiscal position is slightly riskier than the years before. The gap increases the possibility that the government will need to take actions which could adversely influence the nation’s economic health, such as resorting to expropriations of property, raising taxes, or printing money, in order to meet its promises unless there is not enough capital to finance current investment opportunities. Otherwise unsavory consequences such as capital flight could dry up new investment, affecting incentives to work, save, and take risks, and which would result in monetary instability, high inflation, high interest rates, currency depreciation, etc. On a side note, it is important to point out that the deficits are not big enough to define Australia as fiscal irresponsible. Monetary instability leads to large and unpredictable changes in the money supply whereby central banks attempt to monetize the debt through increasing interest rates which result in higher inflation. Inflation is the logical outcome of an expansion of the money supply in excess of real output growth. It also reflects erosion in the purchasing power of money – a loss of real value in the internal medium of

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