Multinational capital budgeting

摘要

The rapid growth of multinational corporations has hastened the need for the development of robust models to handle the increased risk and complexity. Particularly in capital budgeting, careful analysis and adequate reflection of the critical variables are essential. The great number of relevant variables, their significant interrelationships, and the high degree of uncertainty render mathematical models highly complex or infeasible to solve. To overcome these shortcomings, a "Hertz-type" simulation model is formulated for the multinational firm. The important international variables---foreign exchange rates, foreign tax methodology, host government controls, and other social, economic, and political factors---are reflected in the model. A two stage approach is utilized: first, investment projects are analyzed by the subsidiary and if they pass this first screening they are proposed for the parent's consideration; second, the parent evaluates the attractiveness of projects from its point of view and ranks proposals for acceptance considering all global opportunities. The model is designed so that sensitivity analysis can be easily performed.