You are a team of consultants with WSC Capital Solutions. Your client is a US manufacturer of manure spreaders. This client has operations and sales across the entire country. Since it has nearly saturated the US market with its manure spreaders, the company is looking to expand its operations overseas. Your client has discussed various methods of establishing themselves as players in the global market place and gaining market share at the global level. The client has decided to venture into the global market place through the strategic purchase of manure spreader plants in other countries. The client would own 100% of these foreign subsidiaries. This will give them immediate access to global markets and instant knowledge about local market preferences and cultural influences. Your client has currently set its sights on spreader producers in Germany, China and Brazil. (These companies have only domestic/local operations and sales.) How will the client evaluate these three international capital investments?

The client applies the NPV method for all its capital budgeting projects. Though your client is very skilled in the process of capital budgeting through your previous consulting engagements, it is new to the international dimension of the capital budgeting process. The client requests your consulting services to explain to them the impact of the international dimension on the capital budgeting process. Please explain to the client the impact of the international dimension on the capital budgeting process in terms of the following three inputs in the capital budgeting process:

1. Risks of these international investments: What types of risks are there to be considered? How would these additional risks impact your NPV process?
2. Cash flows of these foreign subsidiaries: What complications would you have in estimating the cash flows of these investments? What complications might you have getting access to these foreign cash flows?
3. Weighted Average Cost of Capital: In general how might your cost of capital be impacted, if you raised your capital in foreign markets as well?

You are writing your response to the clients CFO, who is very knowledgeable about financial management and capital budgeting in the domestic context.