Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

7. Multinational capital budgeting Aa Aa The basic principles of capital budgeting are valid for both domestic and multinational capital budgeting analysis. However, it is

image text in transcribedimage text in transcribed

7. Multinational capital budgeting Aa Aa The basic principles of capital budgeting are valid for both domestic and multinational capital budgeting analysis. However, it is important to recognize the unique risks that multinational firms face when they perform capital budgeting analysis in a foreign market. For instance, a U.S.-based multinational firm might conduct business in Brazil, but any profits made must be repatriated, or returned, to the parent company and converted to U.S. dollars. There are significant risks inherent in these rather simple operations. In the table below, correctly identify whether each type of risk being described is an exchange-rate risk or a political risk. Exchange-R Politica Risk ate Risk The risk related to the foreign currency cash flows that will be turned over to the parent company and converted into U.S. dollars The risk that action by the host country will reduce the value of the investment The risk of expropriation (seizure) of a foreign subsidiary's assets by the host country or restrictions on cash flows to the parent company Lo Russo Industries has considerable operations in Indonesia, producing component electronic parts. LoRusso's Indonesia operation has been very successful, but the firm is now concerned about the effect of the decline in the value of the Indonesian rupiah on the firm's profits Which type of multinational capital budgeting risk is being illustrated by LoRusso's situation? O Corporate risk O Political risk O Stand-alone risk O Exchange-rate risk O Market risk

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Oxford Handbook Of Pricing Management

Authors: Ozalp Ozer, Robert Phillips

1st Edition

0199543178, 978-0199543175

More Books

Students also viewed these Finance questions

Question

Explain the pages in white the expert taxes

Answered: 1 week ago

Question

5. If yes, then why?

Answered: 1 week ago

Question

6. How would you design your ideal position?

Answered: 1 week ago