Unformatted text preview: Sound Device 1. 2. Multinational firms or larger corporations usually evaluate projects by utilizing capital budgeting process. The approach is usually done by calculating the projected future cash flow. Weight Average Cost of Capital or Weight Marginal Cost of Capital is calculated and selected appropriately depending on cases. Then, common tools such as Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index, and Payback Period are used. In the context of risks, different firms in different industries have different constant of these values. For instance, a high-tech firm would require a much shorter payback period than a power plant firm due to the fast-changing environment of the industry. As of the multinational firms, they do not only engage in different type of businesses, but also different countries, which have different level of risks. For example, engaging projects in developing countries which have a higher level of political instability might provide a higher return, but certainly comes with a...
View Full Document
- Spring '11
- Net Present Value, Internal rate of return, multinational firms