Capital Budgeting

In this assignment help paper we explained the basic idea for how you can conduct a capital budgeting analysis for a global project and you will be able to calculate NPV and IRR for overseas as opposed to domestic projects In this assignment help, we used the APA referencing style. Please do let us know if you have any query in this paper or new work for us. We assure you that you will get 100% original with 100% privacy paper help from assignment help experts.

How would you conduct a capital budgeting analysis for a global project?  

How would you calculate NPV and IRR for overseas as opposed to domestic projects?

 Capital Budgeting Analysis for Global Project

The capital budgeting decisions are also known as the investment decisions. The global project for a company will help to expand the business. In order to conduct the capital budgeting analysis for a global project, the estimation of cash flows, estimation of required rate and application of decision rule will be performed. All the cash flows will be determined for capital budgeting analysis of global project to determine true profitability.

It is because; a global project is more complicated as it includes foreign taxes, exchange rate volatility, repatriation barriers etc. (Baker & Powell, 2005) All these elements will be considered, while conducting capital budgeting analysis of a global project. The return from the project will also be identified to evaluate the global project.

In conducting capital budgeting analysis for global project, mainly NPV and IRR techniques will be used as these techniques includes time value of money and at the same time, provides accurate information about the present value of future cash flows. The use of these techniques will also be effective to include the impact of inflation, currency exposure, and exchange rate volatility (Baker & Powell, 2005). These techniques will also help to amount and timing of the relevant cash flows that will help the managers to evaluate and select the best project for business growth. The capital budgeting assignment help analysis of global project will mainly focus over the values that will be added by the global project to the parent company.

Calculation of NPV & IRR

The capital investment in overseas projects involves additional risks than the risks in domestic projects. The NPV and IRR techniques in domestic projects generally used without considering the inflation or exchange rate volatility. On the other hand, in using NPV and IRR for overseas projects the main focus will be on the value that will be added or subtracted for the parent company. For the calculation of NPV, the discount rate is required. In domestic project, the discount rate is simply determined as the required rate or cost of capital for the company. On the other hand, in overseas project the discount rate is considered by considering all relevant risks such as political risk, exchange rate risks, hyper inflation risks etc. (Ross, Westerfield & Jordan, 2008)

The discounted cash flows of the overseas project will be converted into home currency of the parent company as per the current exchange rate. It will be effective to take the consideration of exchange risk and its impact over the parent company. For the calculation of IRR, all the cash flows will be converted into domestic currency with the inclusion of exchange rate risk, inflation risk, and foreign tax risks etc. (Ross, Westerfield & Jordan, 2008). After this, the IRR will be calculated that will provide more accurate information about the profitability of overseas project for parent company.

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References

Baker, H.K. & Powell, G.E. (2005). Understanding Financial Management: A Practical Guide. Assignment Help,Wiley-Blackwell.

Ross, S.A., Westerfield, R. & Jordan, B.D. (2008). Fundamentals of Corporate Finance (8^th ed.). The McGraw-Hill Professionals.