Sesi 13-14:

MULTINATIONAL
CAPITAL BUDGETING

Dr. M. Budi Widiyo Iryanto

CAPITAL BUDGETING
Capital Budgeting adalah proses keputusan-
keputusan perusahaan yang berkaitan dengan
investasi jangka panjang (aktiva riil)
METODE KEPUTUSAN YANG SERING
DIGUNAKAN ADALAH:
Net Present Value (NPV)
Internal Rate of Return (IRR)
Profitability Index (PI)
MULTINATIONAL CAPITAL BUDGETING

Multinational corporations (MNCs)

evaluate international projects by using
multinational capital budgeting, which
compares the benefits and costs of these
projects.
MULTINATIONAL CAPITAL BUDGETING

Financial managers must understand how

to apply capital budgeting to international
projects, so that they can maximize the
value of the MNC.
Mengapa Multinational Capital
Budgeting Penting?

Initial Investment Besar? >$100 juta

Proyek sulit dibatalkan/dijual dengan
harga wajar jika dipandang tidak layak
Subsidiary versus Parent Perspective

Some projects can be feasible for a subsidiary even if

they are not feasible for the parent, since net after-tax
cash inflows to the subsidiary can differ substantially
from those to the parent.
Such differences in cash flows between the subsidiary
versus parent can be due to several factors:
Tax differentials
Regulations that restrict remittances
Exchange rate movements
Remitting Subsidiary Earnings to the Parent
MULTINATIONAL CAPITAL BUDGETING
EXAMPLE
MULTINATIONAL CAPITAL BUDGETING
EXAMPLE
MULTINATIONAL CAPITAL BUDGETING
EXAMPLE
BASIC ANALYSIS of MCB
BASIC ANALYSIS of MCB
Factors to Consider in Multinational
Capital Budgeting
Exchange rate fluctuations
Inflation
Financing Arrangement
Block Funds
Uncertain Salvage Value
Impact of Project on Prevailing cash flow
Host Government incentives
Real options
Factors to Consider in Multinational
Capital Budgeting
Exchange rate fluctuations
Pada kasus Spartan kondisi ekonomi
dikategorikan stable, sekarang ada dua skenario
lain yaitu :
Kondisi ek. Year 1 Year 2 Year 3 Year 4
Strong .54 .57 .61 .65
Weak .47 .45 .40 .37
Factors to Consider in Multinational
Capital Budgeting
Exchange rate fluctuations
Factors to Consider in Multinational
Capital Budgeting
Exchange rate fluctuations
Melakukan hedging untuk memastikan CF yang
diterima parent.
Contoh:
Dari proyeksi CF yang diterima parent di Hedge
dengan kontrak Forward sebesar $ 4.000.000
pada posisi $0.48 (forward rate)
Factors to Consider in Multinational
Capital Budgeting
Exchange rate fluctuations
Factors to Consider in Multinational
Capital Budgeting
Inflation
Although price/cost forecasting implicitly considers
inflation, inflation can be quite volatile from year to
year for some countries.

Posisi mana saja yang terpengaruh?

Factors to Consider in Multinational
Capital Budgeting
Financing Arrangement
Assume that the subsidiary borrows S$10 million to
purchase the offices that are leased in the initial
example. Assume that the subsidiary will make interest
payments on this loan (of S$1 million) annually and will
pay the principal (S$10 million) at the end of Year 4,
when the project is terminated. Since the Singapore
government permits a maximum of S$2 million per year
in depreciation for this project, the subsidiary’s
depreciation rate will remain unchanged. Assume the
offices are expected to be sold for S$10 million after
taxes at the end of Year 4.
Factors to Consider in Multinational
Capital Budgeting
Financing Arrangement
Assume: dana diperoleh dari parent?
Factors to Consider in Multinational
Capital Budgeting
Financing Arrangement
Assume: dana diperoleh dari parent?
Factors to Consider in Multinational
Capital Budgeting
Financing Arrangement
Assume: dana diperoleh dari parent?
Factors to Consider in Multinational
Capital Budgeting
Block Funds
Some countries may require that the earnings be
reinvested locally for a certain period of time
before they can be remitted to the parent.
Asumsi : pemerintah singapura melakukan block
fund sebesar 100%, Marketable securities
dengan bunga 5% per tahun
Factors to Consider in Multinational
Capital Budgeting
Block Funds
Factors to Consider in Multinational
Capital Budgeting
Uncertain Salvage Value:
Suati posisi Salvage value yang menghasilkan
NPV = 0
Factors to Consider in Multinational
Capital Budgeting
Uncertain Salvage Value
Factors to Consider in Multinational
Capital Budgeting
Impact of Project on Prevailing cash flow
The new investment may compete with the existing
business for the same customers.
assuming this time that
(1) Spartan currently exportstennis rackets from its U.S.
plant to Singapore;
(2) Spartan, Inc., still considers establishing a subsidiary
in Singapore because it expects production costs to be
lower in Singapore than in the United States; and
(3) without a subsidiary, Spartan’s export business to
Singapore is expected to generate net cash flows of $1
million over the next 4 years.
Factors to Consider in Multinational
Capital Budgeting
Impact of Project on Prevailing cash flow
Factors to Consider in Multinational
Capital Budgeting
Host Government incentives
For example, a low-rate host government loan or
a reduced tax rate offered to the subsidiary will
enhance periodic cash flows. If the government
subsidizes the initialestablishment of the
subsidiary, the MNC’s initial investment will be
reduced.
Factors to Consider in Multinational
Capital Budgeting
Real options.
Host Governance tdk mengijinkan suatu proyek
dari MNC manakala MNC tidak menjalankan
proyek yang diusulkan Host Governance
(meskipun NPV < 0)
Adjusting Project Assessment
for Risk

Risk-adjusted discount rate

Sensitivity analysis
Simulation
INTERNATIONAL CORPORATE
GOVERNANCE

When multinational corporations (MNCs) expand

internationally, they are subject to various types of
agency problems. Many of the agency problems
occur because incentives for managers of the
parent or its subsidiaries are not properly
structured to ensure that managers focus on
maximizing the value of the firm (and therefore
shareholder wealth). International corporate
governance and corporate control can ensure that
managerial goals are aligned with those of
shareholders.
CORPORATE GOVERNANCE MECHANISMS

Governance by Board Members

Governance by Institutional Investors
Governance by Shareholders Activists
INTERNATIONAL CORPORATE CONTROL

Mekanisme kendali tidak optimal – manajer tetap

oportunis
Perusahaan menjadi Target Akuisisi (Ancaman
Takeover)
Motives for International Acquisitions

increase global market share

to capitalize on economies of scale through global
consolidation
a comparative advantage in terms of their technology
or image in a foreign market where competition is not
as intense as in their domestic market.
international acquisitions as a better form of direct
foreign investment (DFI) than establishing a new
subsidiary.
Contoh: Oracle Corp., Google, Inc., Borden, Inc., Dow
Chemical Co
Multinational Restructuring

Building a new subsidiary in the Netherlands,

acquiring a company in Italy, to sell its Singapore
subsidiary, to downsize its operations in New
Zealand, or shifting production among
subsidiaries, are all forms of multinational
restructuring.
MNCs continually assess possible forms of
multinational restructuring to capitalize on
changing economic, political, and industrial
conditions across countries
Divestitures
Reconsider the example from the previous chapter in which
Spartan, Inc., considered establishing a Singapore subsidiary.
Assume that the Singapore subsidiary was created and, after 2
years, the spot rate of the Singapore dollar (S$) is $.46. In addition,
forecasts have been revised for the remaining 2 years of the project,
indicating that the Singapore dollar should be worth $.44 in Year 3
and $.40 in the project’s final year. Because these forecasted
exchange rates have an adverse effect on the project, Spartan, Inc.,
considers divesting the subsidiary. For simplicity, assume that the
original forecasts of the other variables remain unchanged and that
a potential acquirer has offered S$13 million (after adjusting for any
capital gains taxes) for the subsidiary if the acquirer can retain the
existing working capital.
Divestitures
Call Option on Real Assets

Opsi usulan proyek untuk membeli usaha tambahan

Contoh:
Coral Inc, sebuah perusahan internet di USA berencana
mengakuisisi perusahan internet di Luar Negeri.
Jika perusahaan mengakuisisi perusahaan internet di
Meksiko, NPV negatif
Jika perusahaan mengakuisisi perusahaan internet di
Brasil, NPV positif tetapi perusahaan tersebut hanya
menjual pada perusahaan yang dikenal dan dapat
dipercaya (dengan perusahan di Meksiko kenal baik
tetapi dengan Coral Inc tidak)
Country Risk Analysis

Country risk merefleksikan dampak negatip dari

lingkungan negara atas aruskas MNC.
RISK : POLITIK DAN KEUANGAN
Country Risk Analysis

• Country risk can be used:

– Menghidari negara-negara yang memiliki risiko
tinggi.
– Memantau negara-negara tempat MNC
berbisnis….Bila mulai tinggi…perlu
dipertimbangkan ulang.. Jual?
– Menilai bentuk-bentuk risiko tertentu yang
akan dihadapi suatu proyek yang berlokasi di
negara asing
Political Risk Factors

• Attitude of Consumers in the Host Country

– Some consumers may be very loyal to homemade
products.
• Attitude of Host Government
– The host government may impose special requirements or
taxes, restrict fund transfers, subsidize local firms, or fail to
enforce copyright laws.
Political Risk Factors

• Blockage of Fund Transfers

– Funds that are blocked may not be optimally used.
• Currency Inconvertibility
– The MNC parent may need to exchange earnings for
goods.
Political Risk Factors

• War
– Internal and external battles, or even the threat of war, can
have devastating effects.
• Bureaucracy
– Bureaucracy can complicate businesses.
• Corruption
– Corruption can increase the cost of conducting business or
reduce revenue.
 Corruption Perceptions Index
The index, which is published by Transparency International,
reflects the degree to which corruption is perceived to exist
among public officials and politicians.
In 2001, 91 countries are ranked on a clean score of 10.
Rank Country Score Rank Country Score
1 Finland 9.9 23 France 6.7
3 New Zealand 9.4 26 Botswana 6.0
4 Singapore 9.2 27 Taiwan 5.9
7 Canada 8.9 38 South Africa 4.8
13 U.K. 8.3 42 South Korea 4.2
14 Hong Kong 7.9 46 Brazil 4.0
16 Israel 7.6 51 Mexico 3.7
16 U.S.A. 7.6 57 Argentina 3.5
18 Chile 7.5 57 China 3.5
20 Germany 7.4 79 Russia 2.3
21 Japan 7.1 88 Indonesia 1.9
http://www.asiarisk.com/exsum.pdf
Contoh 2 (lihat BAB 14)

• Lihat Kasus Spartan Inc., yang mana asumsi awal dianggap

sama, asumsi tambahan adalah sbb :
Probabilitas Withholding tax
70% 10%
30% 20%

Probabilitas Salvage Value

60% S$ 12,000,000
40% S$ 7,000,000
Thanks for your attention