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