Capital budgeting in the multinational corporations

In this dissertation, the differences between the capital budgeting decisions of domestically operating firms and the capital budgeting decisions of internationally operating firms are displayed. The importance of assessing of international investments from the parent perspective and the subsidiary perspective is explained. The effects of risk factors in the project evaluation such as exchange risk, inflation and politic risk are identified and it?s explained that how the discount factor used in discounting the project future cash flows differentiate according to national and international criteria.There are several factors that influence the multinational capital budgeting decision. The most important ones are that it?s normally appropriate for an MNC?s parent to assess the project from its perspective, a foreign project normally is more beneficial to the parent when foreign currency appreciates over the life of the project, the impact of exchange rate movements on cash flows to the parent tends to be greater when the project provides most or all of the investment and less when the foreign project is financed with debt from the host country, blocked funds have a greater adverse impact on a foreign project when the investment oppurtunities in the foreign country are limited.Since most foreign projects involve some uncertainty because of country-spesific factors, the capital budgeting process should attempt to account for the uncertainty. In the multinational capital budgeting one of the most common ways to account for uncertainty is risk-adjusted present value method.