Capital budgeting in multinational companies and a practice about foreign investment decisions

In this thesis, capital budgeting which multinational companies use to evaluate their foreign direct investments, in other words international capital budgeting, is explained. In this extent, general information about multinational companies, which form theoretical framework of international capital budgeting and foreign direct investments, is given.Multinational companies have to deal with especially country risks. These risks have direct effects on capital costs of companies. In other words, they are effective on discount rate, which is used for calculation of present value of expected cash flows in appreciation period of projects. So, for companies, managing risks well, is one of important elements in providing an advantage in competition. Advanced structures are needed in dealing with risks and scientific methods must be used.The same theoretical framework is used in international capital budgeting with local capital budgeting. In addition to this, there are some complexities in international capital budgeting. Researches since 1960s have shown that, companies frequently use `?Net Present Value?? and `?Internal Return Rate?? as their capital budgeting methods. In addition to these methods, as alternatives of classical methods which are used for appreciation, `?Adjusted Present Value?? and `?Real Options?? methods have been developed. In certain works, it is also stated that, companies prefer `?Sensitivity Analysis?? and `? Scenario Analysis?? as risk appreciating methods.In this thesis, Adjusted Present Value is used. In this method, groups which are thought that can create cash flow (operation cash flows, capital and interest payments of privileged credits, amortizations, tax delays etc.) are shown with different terms in the equation, and are discounted by using three different basic ratios such as, cost of proprietary capital, nominal interest rate of investor country and risk-free interest rate of investor country. For example, operation cash flows to main company are calculated by using capital assets pricing model, which contains systematic risk, and are discounted by using cost of equity, principal and interest payments of concessionary loans and market interest rate of investor country.As a result, Adjusted Present Value method is suggested to provide a more elastic structure to companies in evaluating international direct investment decisions.Key Words: Multinational Companies, Foreign Direct Investments, International Capital Budgeting, Adjusted Present Value