Lecture-9-MNC+Management

Stable however in latin america africa the far east

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Unformatted text preview: opriations include those of ITT and Anaconda Copper Past in Chile, Gulf Oil in Bolivia, Occidental Petroleum in Libya, Enron Corporation in Peru, and the assets of many companies in Iraq, Iran, and Cuba. Iraq, 26 Multinational Capital Budgeting The PRS (Political Risk Service) Group, Inc., an independent The company based in East Syracuse, New York, publishes the International Country Risk Guide, which contains individual ratings for political, financial, and economic risk, along with a composite rating for each country. composite The political variable—which is given 50 percent of the weight The in the composite rating— includes factors such as government corruption and the gap between economic expectations and reality. The financial rating looks at such things as the likelihood of The losses from exchange controls and loan defaults. The economic rating takes into account such factors as inflation The and debt-service costs. and 27 Multinational Capital Budgeting 28 Multinational Capital Budgeting Note that companies can take several steps to reduce the Note potential loss from expropriation: (1) finance the subsidiary with local capital, (1) (2) structure operations so that the subsidiary has value only (2) as a part of the integrated corporate system, and (3) obtain insurance against economic losses from (3) expropriation from a source such as the Overseas Private Investment Corporation (OPIC). In the latter case, insurance premiums would have to be In added to the project’s cost. added 29 Multinational Working Capital Mgt Cash Management The goals of cash management in a multinational The corporation are similar to those in a purely domestic corporation: (1) to speed up collections, slow down disbursements, and (1) thus maximize net float; (2) to shift cash as rapidly as possible from those parts of (2) the business where it is not needed to those parts where it is needed; and (3) to maximize the risk-adjusted, after-tax rate of return on (3) temporary cash balances. temporary 30 Multinational Working Capital Mgt Cash Management Multinational companies use the same general procedures Multinational for achieving...
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