Session 8:
International Capital Budgeting
Global Financial Management
Meng Gao
School of Business, University of Connecticut
Poll
•The adjusted present value (APV) model that is suitable for an
MNC is the basic net present value (NPV) model expanded to
•
A) distinguish between the market value of a levered firm
and the market value of an unlevered firm.
B) discern the blocking of certain cash flows by the host
country from being legally remitted to the parent.
C) consider foreign currency fluctuations or extra taxes
imposed by the host country on foreign exchange
remittances.
D) all of the options
Quiz
•Given the following information for a levered and unlevered firm, calculate
the difference in the cash flow available to investors. Assume the corporate
tax rate is 40 percent. (Hint: Calculate the tax savings arising from the tax
deductibility of interest payments).
•A) $8
B) $18
C) $78
D) $90
Levered Unlevered
Revenue $ 250 $ 250
Operating cost −$ 100
−$
100
Interest expense −$ 20 $ 0
Outline
•Review of domestic capital budgeting
•The adjusted present value model
•Capital budgeting from the parent firm’s perspective
•Risk adjustment in the capital budgeting analysis
