TAILIEUCHUNG - Lecture Multinational financial management - Topic 14: Domestic capital budgeting: NPV, free cash flows, and cost of capital

In this chapter, students will be able to understand the methods for valuing domestic investments; can value a domestic investment using Free Cash Flow, NPV, WACC, Unlevered and Levered betas, Cost of Equity, Cost of Debt, Present Value of Growth perpetuities, and Exit Multiples. | Topic #14: Domestic Capital Budgeting: NPV, Free cash Flows, and Cost of Capital L. Gattis The Pennsylvania State University 0 Finance 407: Multinational Financial Management Capital Budgeting 0 Review Poll: Real Appreciation 1 Suppose the Chilean peso exchange rate increases from P450/$ to P475/$. Over that same time period inflation in the . was 2% and inflation in Chile was . What was the real appreciation of the peso? A. -15% B. -5% C. 0% D. +5% E. +15% Capital Budgeting 1 Learning Objectives 2 Students understand and can recall The methods for valuing domestic investments and managing country risk Students can compute NPV WACC Unlevered and levered beta Cost of equity Present value of Growth perpetuities Present value of exit multiples Capital Budgeting 2 NPV and Discount Rate 3 Net Present Value (NPV) discounted present value of an investment’s free cash flows discounted at a rate, K, which is called the “cost of capital” Rule: accept all investments where NPV > 0 .

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