FREE online courses on Capital Budgeting Analysis - Additional
Considerations in Capital Budgeting Analysis - International Projects
Capital investments in other countries can involve additional
risks. Whenever we invest in a foreign project, we want to focus on the values
that are added (or subtracted) to the Parent Company. This makes us consider all
relevant risks of the project, such as exchange rate risk, political risk,
hyper-inflation, etc. For example, the discounted cash flows of the project are
the discounted cash flows of the project to the foreign subsidiary converted to
the currency of the home country of the Parent Company at the current exchange
rate. This forces us to take into account exchange rate risks and its impact to
the Parent Company.
