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Capital Budgeting Decisions Multinational Companies

How can the following affect the capital budgeting decisions of multinational companies:

- exchange rate risk
- political risk
- tax law differences
- transfer pricing
- a strategic rather than a strict financial viewpoint

What examples can you provide from your reading of business periodicals to support your ideas? Remember to think about both large and small firms.

Solution Preview

Before making a capital budgeting decision, the finance manager is to first identify the project and determine whether or not the project should be pursued or not based on 1) payback period, 2) IRR, or 3) NPV. When dealing with multinational companies, there are other factors that must be considered because different countries have their own set of rules when dealing with finance matters. For example, different countries may have differing foreign tax regulations, exchange, rates or project-specific financing rules.

Below are reasons to how capital budgeting decisions of multinational companies can affect exchange rate risk, political risk, tax law ...

Solution Summary

Before making a capital budgeting decision, the finance manager is to first identify the project and determine whether or not the project should be pursued or not based on 1) payback period, 2) IRR, or 3) NPV. When dealing with multinational companies, there are other factors that must be considered because different countries have their own set of rules when dealing with finance matters.

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