Fundamentals of Financial Management, Third Edition

6.6 INTERNATIONAL CAPITAL BUDGETING

When a firm investments in a project abroad, it also applies the techniques of project evaluation. Capital budgeting among the multinational firms is a common feature. They apply the same evaluation criteria that have been discussed in the preceding chapter. However, they have to face a few problems in this context. First, the tax rate in different countries is different. Projects may be feasible taking into account low tax rates in the host country, but may not be feasible with a high tax rate in the home country. Second, changes in the exchange rate may put the project into the unfeasible zone from the parent’s point of view, if not from the viewpoint of the subsidiary. What is more important is that the ...