23 Estimating cash flows of a foreign project.

Assume that Nike decides to build a shoe factory in Brazil; half the initial outlay will be funded by the parent’s equity and half by borrowing funds in Brazil.

Assume that Nike wants to assess the project from its own perspective to determine whether the project’s future cash flows will provide a sufficient return to the parent to warrant the initial investment. Why will the estimated cash flows be different from the estimated cash flows of Nike’s shoe factory in New Hampshire? Why will the initial outlay be different?

Explain how Nike can conduct multinational capital budgeting in a manner that will achieve its objective.