--%>

Political risk in capital budgeting

How would you include political risk within the capital budgeting process of foreign investment projects?

E

Expert

Verified

One method is to regulate the capital cost upward to reflect the political risk and discount expected future cash flows at the higher rate. Otherwise, one may subtract insurance premium for political risk from expected future cash flows and utilize the usual capital cost that is applied into the domestic capital budgeting.

   Related Questions in Financial Accounting

  • Q : Why cash is so important Why cash is so

    Why cash is so important? Illustrate it.

  • Q : Modigliani-Miller equation In

    In Modigliani-Miller equation, why is market value of the levered firm is more than the market value of an equivalent unlevered firm?

  • Q : Creative thinking & Problem solving

    General Instructions: In composing your responses to all tasks, please use full sentences and pay careful attention to spelling, grammar, punctuation, and clarity of expression. Both the content of your work and its present

  • Q : Essential condition for

    Specify the essential condition for the fixed-for-floating interest rate swap to be possible?

  • Q : Discuss to what extent does risk and

    to what extent does risk and term structure affects interest rates of financial instruments.

  • Q : Capital budgeting analysis State some

    State some of the problems which may enter into capital budgeting analysis in case project debt is computed rather than borrowing capacity made by the project?

  • Q : Difference between Finance and Accounts

    What are the basic differences between Finance and Accounts?

  • Q : What is Assets in Accounting Assets are

    Assets are those resources that the business owns. Assets are the things of value owned which enable the firm to get cash or befit in future. There are mainly two types of assets: - Current assets & Fixed assets for e.g. cash, f

  • Q : Incremental cash flows of capital

    Describe what you mean by the incremental cash flows of a capital project.

  • Q : Accounting Acquisition Entry and

    Acquisition Entry and Consolidation Working Paper On January 31, 2014, Phoenix, Inc. acquired all of the outstanding common stock of Spark Corporation for $400 million cash plus 25 million shares of Phoenix' $10 par value common stock having a market value of $90 per share. Registration fees were $