Subsidiary versus Parent Perspective

SUMMARY (Cont.)• Multinational capital budgeting requires any input that willhelp estimate the initial outlay, periodic cash flows, salvagevalue, and required rate of return on the project. With thesefactors, the international project’s net present value can beestimated, just as if it were a domestic project. However, it isnormally more difficult to estimate these factors for aninternational project. Exchange rates create an additionalsource of uncertainty because they affect the cash flowsultimately received by the parent as a result of the project.Other international conditions that can influence the cash flowsultimately received by the parent include the financingarrangement (parent versus subsidiary financing of the project),blocked funds by the host government, and host governmentincentives.© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use aspermitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.