Chapter 18 Questions and Problems

Chapter 18 Questions and Problems - Click to edit Master...

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Click to edit Master subtitle style 6/6/11 Chapter 18
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6/6/11 l QUESTION 5: What makes the APV capital budgeting framework useful for analyzing foreign capital expenditures? The APV framework is a value-additivity approach to capital budgeting in which each cash flow that is a source of value is considered individually and discounted at a rate of discount consistent with the risk inherent in that cash flow. Since International projects frequently have cash flows not encountered in domestic projects, the APV
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6/6/11 l Question 11 l Discuss the difference between performing the capital budgeting analysis from the project perspective as opposed to the parent firm’s perspective.
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l Project Perspective l The APV model is useful for a domestic firm analyzing a domestic capital expenditure. If APV ≥ 0, the project should be accepted. If APV <0, the project should be rejected. The model is useful for a MNC analyzing a proposed capital expenditure from the subsidiary’s viewpoint. l
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This note was uploaded on 06/06/2011 for the course FINA 4810 taught by Professor Hamilton during the Spring '08 term at University of Georgia Athens.

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Chapter 18 Questions and Problems - Click to edit Master...

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