CH 14 Flashcards
1
Q
Should capital budgeting be conducted from a subsidiary or parent perspective?
A
- Results may vary but the net after-tax inflow to the parent can differ a lot from the subsidiary.
2
Q
Tax differences are due to:
A
- Tax differentials
- Payment regulations
- Excessive payment
- Exchange rate movements
3
Q
What is capital budgeting necessary for? and what is one common method of performing the analysis?
A
- For L-T projects
- Estimate cash flows and salvage value, then compute NPV
4
Q
FORMULAS PGs
A
9,
5
Q
What are the First 4 factors to consider for Capital Budgeting?
A
- ER fluctuations
- Inflation
- Financing arrangement
- Blocked Funds
6
Q
What are the Last 4 factors to consider for Capital Budgeting?
A
- Uncertain SV
- Impact of project on prevailing cash flows
- Host government incentives
- Real Options
7
Q
What is the name of a risk adjustment when an MNC is unsure of its projects Cash Flows? and what happens if the uncertainty is greater?
A
- Risk-adjusted discount rate
- The discount rate is larger
8
Q
What is another risk adjustment method and its done using what?
A
- Sensitivity analysis
- Uses computer software packages
9
Q
What is sensitivity analysis based on?
A
- Involves alternative estimates for the input and it simulates many times.
