CAPITAL BUDGETING FOR INTERNATIONAL PROJECT INVESTMENT DECISION
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Advanced Business and Financial Management — CAIIB.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
What is capital budgeting for international projects?
Capital budgeting for international projects is the process of evaluating and selecting long-term investment opportunities in foreign countries, considering additional risks such as currency fluctuation, political risk, and cross-border regulatory differences.
What is the home currency approach in international capital budgeting?
Convert foreign cash flows to home currency using projected exchange rates.
How does the Adjusted Present Value (APV) method differ from NPV in international capital budgeting?
APV separates the base-case NPV (as if all-equity financed) from the present value of financing side effects such as tax shields and subsidized loans, making it more transparent for international projects with complex financing structures.
What is the foreign currency approach in international capital budgeting?
Discount foreign cash flows at foreign rate, then convert NPV to home currency.
What is the concept of 'parent perspective' vs 'project perspective' in international capital budgeting?
The project perspective evaluates cash flows from the host-country project's standpoint, while the parent perspective evaluates only those cash flows actually remittable to the parent company, net of taxes and restrictions, which is more relevant to shareholder value.
What is a remittable cash flow in the context of international projects?
Cash flow that can actually be repatriated to the parent company.
Why is the parent perspective generally preferred over the project perspective in international investment appraisal?
Because the value to the parent firm depends on cash flows it can actually receive and repatriate, not just the local project's profitability; host-country restrictions or taxes may prevent full repatriation of profits.
How is political risk premium added to the discount rate for international projects?
An additional percentage is added to WACC to reflect country-specific political risk.
Video classes for this chapter
More chapters in Module B - Advanced Concepts of Financial Management
Master the full ABFM syllabus
Every chapter of Advanced Business and Financial Management — videos, tests, notes and one-liner decks in one place.