国际金融管理(2014)-

Multinational

Capital

BudgetingChapter13South-Western/Thomson

Learning

©

2003ChapterObjectives

To

compare

the

capital

budgetinganalysis

of

an

MNC’s

subsidiary

withthat

of

its

parent;

To

demonstrate

how

multinational

capital

budgeting（跨国资本预算）

can

beapplied

to

determine

whether

aninternational

project

should

beimplemented;

and

To

explain

how

the

risk

of

internationalprojects

can

be

assessed.C13

-

2Ⅰ

Subsidiary

versus

ParentPerspectiveC13

-

3

Shouldthecapital

budgeting

for

amulti-national

project

be

conducted

from

theviewpoint

of the

subsidiary

that

willadminister

the

project,

or

the

parent

thatwill

provide

most

of

the

financing?

The

results

may

vary

with

the

perspectivetakenbecause

the

net

after-taxcashinflows

to

the

parent

can

differsubstantially

from

those

to

thesubsidiary.Subsidiary

versus

ParentPerspectiveC13

-

4The

difference

in

cash

inflows

is

due

to

:Tax

differentialsRegulations

that

restrict

remittancesExcessive

remittances¤The

parent

may

charge

itssubsidiary

very

high

administrativefees.Exchange

rate

movementsRemitting

Subsidiary

Earnings

to

the

ParentAfter-Tax

Cash

Flows

Remitted

by

SubsidiaryCash

Flows

Generated

by

SubsidiaryWithholding

Tax

（（预提税）Paid

toHostGovernmentAfter-Tax

Cash

Flows

to

SubsidiaryRetained

Earningsby

SubsidiaryCash

Flows

Remitted

by

SubsidiaryCorporate

TaxesPaid

to

HostGovernmentConversion

of

Fundsto

Parent’s

CurrencyCash

Flows

to

ParentParentC13

-

5Ⅱ

Input

for

MultinationalCapital

BudgetingThe

following

forecasts

are

usuallyrequired:Initial

investmentConsumer

demandProduct

priceVariable

costFixed

costProject

lifetimeSalvage

(liquidation)

valueC13

-

6Input

for

MultinationalCapital

Budgeting10.11.C13

-

7Exchange

ratesRequired

rate

ofreturnThe

following

forecasts

are

usuallyr8r.equireFdu:nd-transfer

restrictions9.

Tax

lawsⅢ

MultinationalCapital

Budgeting

Capital

budgeting

is

necessary

for

alllong-term

projects

that

deserveconsideration.net

present

value

(NPV)C13

-

8MultinationalCapital

BudgetingNPV

=–

initial

outlayn+

S

cash

flowin

period

tt

=1(1

+

k)t+

salvage

value

(1

+

k

)nk

=

the

required

rate

of

returnon

the

projectC13

-

9BackgroundC13

-

10

Spartan,

Inc.,

is

considering

thedevelopment

of a

subsidiary

inSingapore

that

would

manufacture

andsell

tennis

rackets

locally.

Spartan’smanagement

has

asked

variousdepartments

to

supply

relevantinformation

for

a

capital

budgetinganalysis.

All

relevant

information

follows:1.initial

investment

An

estimated

20

million

S$

would

be

needed

for

the

project.

Given

the

existingspot

rate

of

$0.50

per

S$2.project

life

The

project

is

expected

to

end

in

fouryears.

The

host

government

of

Singaporehas

promised

to

purchase the

plant

fromthe

parent

after

four

years.C13

-

113.Exchange

ratesThe

spot

exchange

rate

of

S$

is

$0.50.Spartan

uses

the

spot

rate

as

its

bestforecast

of

the

exchange

rate

that

willexist

in

future

periods.

Thus,

theforecasted

exchange

rate

forall

futureperiods

is

$0.50.C13

-

12

4.

host

country

taxes

on

income

earnedby

subsidiary

The

Singapore

government

will

allowSpartan,

Inc,,

to

establish

the

subsidiaryand

impose

a

20

percent

tax

rate

onincome.

In

addition,

it

will

impose

a

10percent

withholding

tax

on

any

fundsremitted

by

the

subsidiary

to

parentC13

-

13

5.cash

flows

from

Spartan

subsidiary

toparent

The

Spartan

subsidiary

plans

to

send

allnet

cash

flows received

back

to

theparent

firm

at

the

end

of

each

year.

TheSingapore

government

promises

norestrictions

on

the

each

flows

to

be

sentback

to

the

parent

firmC13

-

14

6.U.S.

government

taxes

on

incomeearned

by

Spartan

subsidiary

Earnings

remitted

to

the

U.S

parent

willnot

be

taxed

by

the

U.S.

governmentC13

-

157.depreciation

The

Singapore

government

will

allowSpartan’s

subsidiary

to

depreciate

thecost

of

the

plant

and

equipment

at

amaximum

rate

of

S$2

million

per

year,which

is

the

rate

the

subsidiary

will

use.C13

-

16

8.salvage

value.

The

Singaporegovernment

will

pay

the

parent

S$12million

to

assume

ownership

of

thesubsidiary

at

the

end

of

four

years.Assume

that

there

is

no

capital

gains

taxon

the

sale

of

the

subsidiary.C13

-

179.required

rate

of

return15%C13

-

18Capital

Budgeting

Analysis:

Spartan,

Inc.C13

-

19Capital

Budgeting

Analysis:

Spartan,

Inc.C13

-

20C13

-

21Capital

Budgeting

AnalysisPeriod

t1.

Demand

(1)Price

per

unitTotal

revenue4.

Variable

cost

per

unitTotal

variable

cost

(1)Annual

lease

expense(2)(1)

(2)=(3)(4)(4)=(5)(6)Other

fixed

annual

expenses

(7)Noncash

expense

(depreciation)

(8)9.

Total

expenses(5)+(6)+(7)+(8)=(9)(3)10.(9)=(10)11.Before-tax

earnings

of

subsidiaryHost

government

tax

tax

rate(10)=(11)12.After-tax

earnings

of

subsidiary

(10)–Capital

Budgeting

AnalysisC13

-

2213.Period

t

Net

cash

flow

to

subsidiary(12)+(8)=(13)14.15.Remittance

to

parentTax

on

remitted

funds(14)tax

rate(14)=(15)16.Remittance

after

withheld

tax

(14)–(15)=(16)17.Salvage

value18.Exchange

rate(17)(18)(18)+(17)Cash

flow

to

parent

(16)(18)=(19)PV

of

net

cash

flow

to

parent(19)=(20)(1+k)

-

t(21)Initial

investment

by

parentCumulative

NPVPVs–(21)=(22)ⅣFactors

to

Consider

inMultinational

Capital

BudgetingC13

-

23·

Exchange

rate

fluctuations.Differentscenarios

should

be

considered

togetherwith

their

probability

of

occurrence.Analysis

Using

Different

Exchange

RateScenarios:

Spartan,

Inc.C13

-

24Sensitivity

of

theProject’s

NPVto

DifferentExchange

RateScenarios:Spartan,

Inc.C13

-

25·

Inflation.

Although

price/cost

forecastingimplicitly

considers

inflation,

inflationcan

be

quite

volatile

from

year

to

year

forsome

countries.C13

-

26Factorsto

Consider

inMultinational

Capital

BudgetingC13

-

27Financing

arrangement.

Financing

costsare

usually

captured

by

the

discount

rate.However,

many

foreign

projects

arepartially

financed

by

foreign

subsidiaries.Blocked

funds.

Some

countries

mayrequire

that

the

earnings

be

reinvestedlocally

for

a

certain

period

of

time

beforethey

can

be

remitted

to

the

parent.Capital

Budgeting

with

Blocked

Funds:

Spartan,

Inc.Assume

that

all

funds

are

blocked

until

the

subsidiary

is

sold.C13

-

28Factorsto

Consider

inMul