163x Filetype PPT File size 0.33 MB Source: www.unm.edu
Introduction Scope of financial management includes three sets of related decisions: Investment decisions, decisions about what activities to finance. Financing decisions, decisions about how to finance those activities. Money management decisions, decisions about how to manage the firm’s financial resources most efficiently. © McGraw Hill Companies, Inc., 2000 20-1 Investment Decisions Capital budgeting: quantifies the benefits, costs and risks of an investment. Managers can reasonably compare different investment alternatives within and across countries. Complicated process: Must distinguish between cash flows to project and those to parent. Political and economic risk can change the value of a foreign investment. Connection between cash flows to parent and the source of financing must be recognized. © McGraw Hill Companies, Inc., 2000 20-2 Project and Parent Cash Flows Project cash flows may not reach the parent: Host-country may block cash-flow repatriation. Cash flows may be taxed at an unfavorable rate. Host government may require a percentage of cash flows to be reinvested in the host country. © McGraw Hill Companies, Inc., 2000 20-3 Adjusting for Political and Economic Risk Political risk: Expropriation - Iranian revolution, 1979. Social unrest - after the breakup of Yugoslavia, company assets were rendered worthless. Political change - may lead to tax and ownership changes. © McGraw Hill Companies, Inc., 2000 20-4 Euromoney Magazine’s Country Risk Ratings Total score = 100 100 90 80 Highest and lowest 70 ranked countries. 60 50 40 30 20 10 0 x A r h a n n r u S e t d i a a e u n j c Adapted from L U G N e i s m B a a r b g Table 20.1 e r a B e d z a in text A M © McGraw Hill Companies, Inc., 2000 20-5
no reviews yet
Please Login to review.