The document provides guidance on key considerations for international capital budgeting projects. It outlines 5 points: 1) A project's feasibility should be viewed from the parent company's perspective due to factors like foreign taxes and exchange rates. 2) Existing cash flows from similar projects should be considered, such as how a new theme park could reduce visitors to existing parks. 3) A subsidiary may be worth selling if the sale price exceeds its present value, even if its performance is superior. 4) A company's cost of funds and discount rate for a project should reflect changes in the local interest rate environment. 5) Strategies like payment in local currency or shifting expenses can help balance cash inflows and outflows in the local currency.
The document provides guidance on key considerations for international capital budgeting projects. It outlines 5 points: 1) A project's feasibility should be viewed from the parent company's perspective due to factors like foreign taxes and exchange rates. 2) Existing cash flows from similar projects should be considered, such as how a new theme park could reduce visitors to existing parks. 3) A subsidiary may be worth selling if the sale price exceeds its present value, even if its performance is superior. 4) A company's cost of funds and discount rate for a project should reflect changes in the local interest rate environment. 5) Strategies like payment in local currency or shifting expenses can help balance cash inflows and outflows in the local currency.
Original Description:
International Capital Budgeting
A Key to Exercise Questions
Original Title
International Capital Budgeting A Key to Exercise Questions
The document provides guidance on key considerations for international capital budgeting projects. It outlines 5 points: 1) A project's feasibility should be viewed from the parent company's perspective due to factors like foreign taxes and exchange rates. 2) Existing cash flows from similar projects should be considered, such as how a new theme park could reduce visitors to existing parks. 3) A subsidiary may be worth selling if the sale price exceeds its present value, even if its performance is superior. 4) A company's cost of funds and discount rate for a project should reflect changes in the local interest rate environment. 5) Strategies like payment in local currency or shifting expenses can help balance cash inflows and outflows in the local currency.
The document provides guidance on key considerations for international capital budgeting projects. It outlines 5 points: 1) A project's feasibility should be viewed from the parent company's perspective due to factors like foreign taxes and exchange rates. 2) Existing cash flows from similar projects should be considered, such as how a new theme park could reduce visitors to existing parks. 3) A subsidiary may be worth selling if the sale price exceeds its present value, even if its performance is superior. 4) A company's cost of funds and discount rate for a project should reflect changes in the local interest rate environment. 5) Strategies like payment in local currency or shifting expenses can help balance cash inflows and outflows in the local currency.
(International Capital Budgeting) 1. When a parent allocates funds for a project, it should view the projects feasibility from its own perspective. It is possible that a project could be feasible from a subsidiarys perspective, but be infeasible when considering a parents perspective (e.g. due to foreign withholding taxes and exchange rate changes affecting funds remitted to the parent). 2. Other relevant cash flows are Walt Disney Worlds existing cash flows. The establishment of a theme park in France could reduce the number of European customers that would have visited Disneys U.S. theme part. These foregone cash flows should be considered when assessing the feasibility of the theme part in France. 3. Even if the performance is superior, the subsidiary may be worth selling if the price offered for it exceeds the Athens perceived present value of the subsidiary. 4. The possibility of reunification led to a surge in economic activity, which caused an increase in German interest rate. Therefore, Santa Monicas cost of funds for the German project should rise as well, and its discount rate should be adjusted to incorporate a higher interest rate. 5. Albany may ask the Swiss government to provide payment in dollars. Alternatively, it could attempt to shirt some of its expenses to Switzerland buy either purchasing Swiss suppliers of shirting part of the production process to Switzerland. These strategies will increase Swiss franc outflows, so that franc inflows and outflows are more balanced.