Distinguish total from incremental flows to account

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Distinguish total from incremental flows to account for a. cannibalization b. sales creation c. opportunity cost d. transfer pricing e. fees and royalties
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BASICS OF CAPITAL BUDGETING 3. Getting the base case correct- Rule of thumb: 4. Intangible Benefits a. Valuable learning experience b. Broader knowledge base GlobalCorporate GlobalCorporate Incremental = CashFlow - CashFlow CashFlows withProject WithoutProject          
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ALL-EQUITY COST OF CAPITAL II. Alternative Capital-Budgeting Frameworks A. THE ALL-EQUITY COST OF CAPITAL FOR FOREIGN PROJECTS WACC sometimes awkward 1. To go from the parent to the project 2. Solution: Use all equity discount rate 3. To calculate: k * = r f + Β * ( r m - r f )
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ALL-EQUITY COST OF CAPITAL 4. Β * is the all-equity beta associated with the unlevered cash flows. 5. Unlevered beta obtained by where B * = the firm’s stock price beta D/E = the debt to equity ratio t = the firm’s marginal tax rate ( 29 * 1 1 / e t D E β β = + -
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FOREIGN INVESTMENT ANALYSIS III. TWO ISSUES IN FOREIGN INVESTMENT ANALYSIS A. Issue #1 Parent v. Project Cash Flow -the cash flows from the project may differ from those remitted to the parent 1. Relevant cash flows become quite important
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