Chapter 31
International Corporate Finance
I. Chapter Outline
The following chapter outline is correlated to the PowerPoint Lecture Slides. The PowerPoint slides
are referenced in bold. Alternative Examples to selected textbook examples are also available in the
PowerPoint Lecture Slides and are also referenced in bold.
31.1 Internationally Integrated Capital Markets (Slides 5–11)
31.2 Valuation of Foreign Currency Cash Flows (Slide 19)
• WACC Valuation Method in Domestic Currency (Slide 20)
– Application: Ityesi, Inc. (Slides 21–32)
• Table 31.1 Expected Foreign Free Cash Flows from Ityesi’s U.K. Project (Slide 24)
31.3 Valuation and International Taxation (Slide 40)
• Single Foreign Project with Immediate Repatriation of Earnings (Slides 41–42)
31.4 Internationally Segmented Capital Markets (Slide 45)
• Differential Access to Markets (Slides 46–47)
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Table 31.3, and the NPV is calculated.
The Law of One Price can be used as a robustness check. In order to use this method, the foreign
31.3 Valuation and International Taxation
In the text, the assumption was that Ityesi pays a corporate tax rate of 40% no matter where its
earnings are generated. In fact, the tax calculation is complicated. U.S. tax policy requires U.S.
31.4 Internationally Segmented Capital Markets
The previous discussion has assumed internationally integrated capital markets. This section explores
the implication if this is not the case. The authors begin with a brief discussion of the main reasons
for segmentation of capital markets.
31.5 Capital Budgeting with Exchange Risk
Thus far, the chapter has assumed that free cash flows are uncorrelated with the spot exchange rates.
If, for example, Ityesi imports some of its raw materials from the United States, the pound free cash
134 Berk/DeMarzo • Corporate Finance, Fourth Edition, Global Edition
IV. Spreadsheet Solutions in Excel
The following Problems for Chapter 31 have spreadsheet versions of the problems available: 3, 4, 8,