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    Financial Management

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    -In a foreign project, there are specific risks associated with the location of the project, for example in a country with an unstable political or economic system.
    How can one modify the cash flow calculations to account for increased risks?200 words

    -In using capital budgeting to evaluate a potential foreign project, is there a distinction between the cash flows to the project and the cash flows to the parent company? If yes, what situation will cause such a difference between the two cash flows?200 words

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    Solution Preview

    The response addresses the queries posted in 587 words with references.
    //As per directions, we will talk about the Approach or Methods that modify the Cash Flow Calculations to account for changed specific risks. Cash flow from any project reflects the company's image & liquidity position in the market. //

    To account for increased risks, one can change the cash flow calculations by utilizing the various approach or methods such as APV (Adjusted Present Value) approach and Monte Carlo simulation. In APV method, the initial cash flow comprises of the projects capital cost minus blocked funds. This amount is changed over into the home country currency at the spot exchange rate. It may be observed for adjustment of taxes, APV technique estimates the higher of the home country and host country tax rates. This method is unique in the sense that it uses different rate of discounts for distinct types of cash flows like cash flow on account of sales and other such revenue is discounted at ...

    Solution Summary

    The expert examines financial management foreign projects. The response addresses the queries posted in 587 words with references.