Risk and cost of Potential Kidnapping During a conflict in the Middle East, some MNCs capitalized on opportunities to rebuild the damaged areas. However, some of their employees were kidnapped by local militant groups. How should an MNC account for this potential risk when it considers direct foreign investment (DFI) in any particular country? Should it avoid DFI in any country in which such an event could occur? If so, how would it screen the countries to determine which countries have acceptable risk? For whatever countries the MNC is willing to consider, should it adjust its feasibility analysis to account for the possibility of kidnapping? Should it attach a cost to reflect this possibility or increase the discount rate when estimating the net present value? Explain.

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 16, Problem 21QA
Textbook Problem

Risk and cost of Potential Kidnapping During a conflict in the Middle East, some MNCs capitalized on opportunities to rebuild the damaged areas. However, some of their employees were kidnapped by local militant groups. How should an MNC account for this potential risk when it considers direct foreign investment (DFI) in any particular country? Should it avoid DFI in any country in which such an event could occur? If so, how would it screen the countries to determine which countries have acceptable risk? For whatever countries the MNC is willing to consider, should it adjust its feasibility analysis to account for the possibility of kidnapping? Should it attach a cost to reflect this possibility or increase the discount rate when estimating the net present value? Explain.

This textbook solution is under construction.

Expert Solution

Want to see the full answer?

Check out a sample textbook solution.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

*Response times vary by subject and question complexity. Median response time is 34 minutes and may be longer for new subjects.