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picture1_Financial Presentation Template 72047 | Chap20


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File: Financial Presentation Template 72047 | Chap20
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 ...

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                                         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
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...Introduction scope of financial management includes three sets related decisions investment about what activities to finance financing how those money manage the firm s resources most efficiently mcgraw hill companies inc capital budgeting quantifies benefits costs and risks an managers can reasonably compare different alternatives within across countries complicated process must distinguish between cash flows project parent political economic risk change value a foreign connection source be recognized may not reach host country block flow repatriation taxed at unfavorable rate government require percentage reinvested in adjusting for expropriation iranian revolution social unrest after breakup yugoslavia company assets were rendered worthless lead tax ownership changes euromoney magazine ratings total score highest lowest ranked x r h n u e t d i j c adapted from l g m b table z text...

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