Question

4. firms that make direct for foreign investment must evaluate such opportunities requiring capital investment very differently from the methods used to evaluate domestics investments. Describes theses differences from both a capital budgeting and country risk perspective.

Answer 1

From the capital budgeting techniques can be mentioned that the varying norms can be a result of liquidity where the foreign exchange can play a major role in understanding the the amount of investment that should be held as debt or equity and the interest rate difference which tells about the capital budgeting where is the interest rate is less than loan can be considered as one of the cheaper alternatives if not equity. Also the volatility of the foreign currency also comes into play while accounting for the capital budgeting.

as far as the country risks are concerned there are many including the political legal and cultural risks when the political system might not get to be in line with that of the home country and there can be various political risks success catastrophic risk etc. Also the legal system can be different where certainaspects might be legal in your home country but not your host country and apart from that the cultural acceptance is also a risk which is why McDonald's failed in Vietnam.