Why should capital budgeting for subsidiary projects be assessed from the parent’s perspective? What additional factors that normally are not relevant for a purely domestic project deserve consideration in multinational capital budgeting?

Why should capital budgeting for subsidiary projects be assessed from the parent’s perspective? What additional factors that normally are not relevant for a purely domestic project deserve consideration in multinational capital budgeting?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter14: Multinational Capital Budgeting

Section: Chapter Questions

Problem 2QA

See similar textbooks

Related questions

Q: Why is it important to match your funding with economic life of corresponding asset?

A: The use of assets economic life matching with funding can be an integral tool for financial…

Q: How to analyze capital budgeting decisions? Which measures are important and why?

A: Capital Budgeting process involve analyzing the cash in flow and outflow of a project, to determine…

Q: Discuss following two international capital markets relationships a) PPP b) International Fisher…

A: Capital market is a place where financial instruments and securities are traded. International…

Q: Question One a) Explain the role of the main counterparties (sponsors) to a concession agreement…

A: In a concession agreement under a Special Purpose Vehicle (SPV), sponsors are pivotal counterparties…

Q: How is capital budgeting similar to security valuation? How is it different?

A: Capital budgeting is the process of evaluating various projects' net present value to arrive at a…

Q: Which of the following is NOTa relevant cash flow and thus should not be reflected in the analysis…

A: Sunk cost is the cost that has been incurred and it would not be recovered in future. It depends on…

Q: Explain the difference between the World Bank and IMF. What role do these institutions play in…

A: What is IMF it is know as international monetary fund , it is an organisation made in Bretton Woods…

Q: How can a firm make a direct foreign investment?

A: Step 1 A foreign direct investment (FDI) is a financial investment made by a company or individual…

Q: What do managers use to evaluate domestic and international capital investment projects? A)…

A: Capital investment decisions are a crucial part of any business. To ensure long-term profitability,…

Q: Is it ever appropriate or acceptable to use the payback method of evaluating capital investment…

A: Introduction: Capital budgeting is an investment criterion or decision making mechanism for…

Q: What is the difference between independent projects and dependent projects? a: Independent…

A: There is a difference between dependent project , independent project and these and analysis help in…

Q: Capital budgeting for a foreign project is considerably more complex than the domestic case. Discuss…

A: Capital budgeting is defined as the process, where the businesses are usually evaluate the proposed…

Q: Generally, is the cost of capital for investing in international countries more or less than…

A: The cost of capital is reflection of the required rate of investment for investors for investing in…

Q: Which of the following is NOT an advantage of the capital budget process? Cautious review of…

A: In capital budgeting process, investors can determine the value of a potential project. There are…

Q: What does the term “risk” mean in the context of capital budgeting; to what extent can risk be…

A: Capital budgeting is the process of evaluating and selecting long-term investment projects that are…

Q: How is the financing structure of Asia Infrastructure Investment Bank (AIIB) different from the…

A: FINANCIAL STRUCTURE: The financial structure of a company refers to the combination of debt and…

Q: Describe the importance of international capital structure. What risks can you identify when working…

A: “Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only…

Q: Discuss the difference between performing the capital budgeting analysis from the parent firm's…

A: Capital budgeting is defined as the process of analyzing as well as ranking proposed projects for…

Concept explainers

Goals and Objectives

A goal motivates a person to achieve a desired outcome using the available resources within a specified time limit. Having goals helps a person focus on a specific desire and directs them to achieve it. An objective is a specific action and a measurable process to achieve the desired goal. A goal needs a specific action plan, i.e., an objective, to be accomplished.

Question

Why should capital budgeting for subsidiary projects be assessed from the parent’s perspective? What additional factors that normally are not relevant for a purely domestic project deserve consideration in multinational capital budgeting?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

In practice, external factors can impact a capital investment. Give a current external factor that may currently Impact or cause instability of capital spending either here or abroad.
What 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 perspective
Explain how political risk and exchange rate risk increase the uncertainty of international projects for the purpose of capital budgeting.
Discuss factors that must be considered for capital budgeting for an MNC’s foreign subsidiary that might not be considered for domestic investment
Explain the differences of two: Domestic Capital Budgeting and Multinational Capital Budgeting
Capital budgeting projects are classified as either independent projects or mutually exclusive projects. [Consider NPV, IRR, Payback Period, and Profitability Index] What is a independent project? What is a mutually exclusive project? Why (or under what circumstance) should either be accepted?
Provide recommendations for financial liberalization?
whether capital generated in the industrialized countries is finding its way to and from emerging markets. Is there some critical distinction between “less developed” and “emerging” breafe paragrph
Explain the role of the main counterparties (sponsors) to a concession agreement under a Special Purpose Vehicle (SPV). b) Why is the SPV, sometimes, considered as an appropriate or optimal strategy to execute certain economic activities? Explain your answer. c) Explain why sometimes sponsors prefer using project financing as opposed to using corporate financing. d) Explain the term project finance in the context of our course? e) Outline the main risks associated with project finance. For each risk explain the suitable risk management strategy.
Question Onea) Explain the role of the main counterparties (sponsors) to a concession agreement under a Special Purpose Vehicle (SPV). b) Why is the SPV, sometimes, considered as an appropriate or optimal strategy to execute certain economic activities? Explain your answer. c) Explain why sometimes sponsors prefer using project financing as opposed to using corporate financing.d) Explain the term project finance in the context of our course?e) Outline the main risks associated with project finance. For each risk explain the suitable risk management strategy.
What are the primary limits or impediments to adopting the notion of investment management?
All of the following are characteristic of the parent's perspective approach in capital budgeting EXCEPT that it. A) estimates future cash flows from the project B. B) uses the subsidiary's local currency C. C) forecasts forward rates D . D) uses the functional currency of the parent ..A.