International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Explain how political risk and exchange rate risk increase the uncertainty of international projects for the purpose of capital budgeting.
Capital budgeting for a foreign project is considerably more complex than the domestic case. Discuss FIVE major factors contribute to this greater complexities.
Discuss the important factors one should consider in the international capital budgeting process to be undertaken by a multinational firm.
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- what risks and capital budgeting issues may arise with international investments and what strategies will help to reduce these risks.arrow_forwardQuestion Which of the statements below is FALSE? A. Multinational capital budgeting is a straightforward application of the Net Present Value (NPV. model with one twist: we can do the analysis in either domestic currency or foreign currency. B. If we are using foreign currency for the NPV decision, all we have to do is restate all the foreign incremental cash flow in terms of future value and use the current exchange rate. C. In conducting a multinational NPV, one must be careful to avoid differences with rounding of exchange rates, discount rates, and cash flow to produce the exact same value. D. With the foreign currency approach in NPV analysis, if we know the appropriate discount rate in the home country and the expected inflation rates in the two countries, we can determine the appropriate foreign discount rate.arrow_forwardWhich of the statements below is FALSE? A. Multinational capital budgeting is a straightforward application of the Net Present Value (NPV. model with one twist: we can do the analysis in either domestic currency or foreign currency. B. If we are using foreign currency for the NPV decision, all we have to do is restate all the foreign incremental cash flow in terms of future value and use the current exchange rate. C. In conducting a multinational NPV, one must be careful to avoid differences with rounding of exchange rates, discount rates, and cash flow to produce the exact same value. D. With the foreign currency approach in NPV analysis, if we know the appropriate discount rate in the home country and the expected inflation rates in the two countries, we can determine the appropriate foreign discount rate.arrow_forward
- Apple is considering a large capital investment in Brazil. The project cash flows have been prepared in Reals, however, Apple plans to fund the entire investment out of its US Dollar ($) holdings. Describe the qualitative and quantitative capital budgeting procedures that Apple should use to evaluate the investment.arrow_forwardWhat do managers use to evaluate domestic and international capital investment projects? A) capital budgeting B) multilateral netting C) net present value D) transfer pricing E) parent's perspectivearrow_forwardOne of the important components of multinational capital budgeting is to analyze the cash flows generated from subsidiary companies. Consider this case: Sacramone Products Co. is a U.S. firm evaluating a project in Australia. You have the following information about the project: • The project requires an investment of AU$1,230,000 today and is expected to generate cash flows of AU$1,200,000 at the end of each of the next two years. • The current exchange rate of the U.S. dollar against the Australian dollar is $0.7877 per Australian dollar (AU$). • The one-year forward exchange rate is $0.8109 / AU$, and the two-year forward exchange rate is $0.8455 / AU$. • The firm’s weighted average cost of capital (WACC) is 9%, and the project is of average risk. What is the dollar-denominated net present value (NPV) of this project? $933,397 $777,831 $738,939 $855,614arrow_forward
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