Final Exam Review Check List(1) ICF.docx - FIN 427 Final...

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FIN 427- Final Exam Review Check List Chapter 14: Multinational Capital Budgeting 1- Why is it important to consider the Parent’s perspective with respect to capital budgeting of subsidiaries proposed projects? I.e. What are the reasons that might lead a parent to reject a project that is viewed favorably from a subsidiary? (Refer to slides 2 & 3). 2- Conduct a capital budgeting analysis, please remember the following points : a. Do not forget to add back depreciation after computing the net income (earnings) after tax b. withholding tax is computed on cash flow that will be remitted to subsidiary (different than corporate income tax) c. check if there are any blocked fund restrictions d. check that direct exchange rate is given, if it appreciates, then you need to have an increasing rate, if it depreciates, then you need to have a decreasing rate e. do not forget to reset your calculator f. do not forget to enter cost of project as negative g. when conducting the analysis, pay attention to the currencies given in your cash flows h. If there was a loan obtained in financing the proposed project, do not to forget to compute the associated interest, and do not include the amount of loan in the capital budgeting analysis, only interest as an expense. i. salvage value is always in the last year of the project and will be given net of taxes

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