MGT3580: Global Enterprise Management

A Key to Exercise Questions

(International Capital Budgeting)
1.
When a parent allocates funds for a project, it should view the projects feasibility
from its own perspective. It is possible that a project could be feasible from a
subsidiarys perspective, but be infeasible when considering a parents perspective
(e.g. due to foreign withholding taxes and exchange rate changes affecting funds
remitted to the parent).
2.
Other relevant cash flows are Walt Disney Worlds existing cash flows. The
establishment of a theme park in France could reduce the number of European
customers that would have visited Disneys U.S. theme part. These foregone cash
flows should be considered when assessing the feasibility of the theme part in France.
3.
Even if the performance is superior, the subsidiary may be worth selling if the price
offered for it exceeds the Athens perceived present value of the subsidiary.
4.
The possibility of reunification led to a surge in economic activity, which caused an
increase in German interest rate. Therefore, Santa Monicas cost of funds for the
German project should rise as well, and its discount rate should be adjusted to
incorporate a higher interest rate.
5.
Albany may ask the Swiss government to provide payment in dollars. Alternatively, it
could attempt to shirt some of its expenses to Switzerland buy either purchasing
Swiss suppliers of shirting part of the production process to Switzerland. These
strategies will increase Swiss franc outflows, so that franc inflows and outflows are
more balanced.