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Summary of Methods by Risk
Franchising and Joint Ventures Foreign Acquisitions New Foreign Subsidiaries FDI LEAST RISK Degrees of Risk to MNC MOST RISK 11 11 D. Valuation Model for an MNC
1. Domestic Model [ E ( CF$,t ) ] V = ∑ t t =1 (1 = k ) n where E(CF$,t) represents expected cash flows to be received at the end of period t, n represents the number of periods into the future in which cash flows are received, and k represents the required rate of return by investors. 12 12 D. Valuation Model for an MNC
2. Valuing International Cash Flows E ( CF$,t ) = ∑ E ( CF j ,t ) × E ( S j ,t )
m j =1 [ where CFj,t represents the amount of cash flow denominated in a particular foreign currency j at the end of period t, Sj,t represents the exchange rate at which the foreign currency (measured in dollars per unit of the foreign currency) can be converted to dollars at the end of period t.
13 13 D. Valuation Model for an MNC
3. MNC’s Cash Flow Uncertainty a. Exposure to International Economic Conditions b. Exposure to International Political Risk 14 14 Cash Flow Diagrams for MNCs Insert Exhibit 1.3 from page 11 15 15...
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