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Article: INTEGRATING TRADITIONAL CAPITAL BUDGETING CONCEPTS INTO AN INTERNATIONAL DECISION-MAKING ENVIRONMENT.
- Article from:
- Engineering Economist
- Article date:
- December 22, 2000
- Author:
CopyrightCOPYRIGHT 2000 Institute of Industrial Engineers, Inc. (IIE). This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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ABSTRACT
The capital budgeting policies of 146 multinational companies are analyzed in light of current financial theory. Extensions of domestic practices into the international area are examined. There are a number of misapplications such as applying corporatewide weighted average cost of capital to foreign affiliate cash flows rather than to cash flows actually remitted to the corporation. Also, risk is frequently measured on a local project basis (in a foreign country) rather than considering the portfolio effect on the total corporation. Ultimately, it is shown that the survey respondents hedge against the uncertainty of the procedures by adding a premium to ...