ABSTRACT
This chapter provides the financial tools required to incorporate country and exchange rate risk exposure in the evaluation of an international investment project. To evaluate transnational investment, the financial manager is required to understand the factors shaping the cross-cultural appreciation of the firm’s products in foreign markets, the tax complexities involved in overseas investments, and the degree of the firm’s exposure to country and exchange rate risks. To illustrate the application of these tools, it uses examples associated with US corporate investments overseas. The net present value is the present value of future cash flows after deduction of the initial cash outlay required to meet the capital expenditure. To estimate the revenues related to a foreign project, the firm has to forecast -usually for a five-year period prices, volume of sales, and inflation trends in the host country. Operating expenses are composed of manufacturing and administrative expenses.
