valuation model for a mnc

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1、ValuationModelsforaMNCandaGlobalInvestorCombinedwithObservationsonExchangeRateImpactsObjectiveofLecture1Inordertounderstandandappreciatetheinternationalforceswhichmultinationalfirmsandglobalinvestorsface,weneedtodevelopvaluationmodelsforglobalcompaniesandinvestors.Themodelswhichw

2、ewilldeveloparepatternedaftertheAnglo-Saxonmodelofcorporatebehaviorandinvestmentvaluations.ValuationConceptsAnglo-SaxonApproach:FirmEvaluation:Considerthevalueofthefirmandcorporatebehaviorintermsof(maximizing)themarketvalueofthefirmforshareholders.Capitalbudgetingtechniquesevalua

3、teprojectsandcorporateinvestmentsonthebasisofpresentvalueoftheircashflows.FinancialAssetEvaluation:Considerthepresentvalueoftheanticipatedfutureincomestreamfromaparticularfinancialasset.4Anglo-SaxonValuationModelforCorporation:PresentValueofFutureCashFlowWhereE(CF$,t)representsex

4、pectedcashflowstobereceivedattheendofperiodt,Nrepresentsthenumberofperiodsintothefutureinwhichcashflowsarereceived,andKrepresentstherequiredrateofreturnbyinvestors.Note:ChangesinVoccurbecauseofchangesinE(CF$,t)and/orchangesinK5MeasuringtheInternationalCashFlowsforaU.S.BasedMNCWhe

5、reCFj,trepresentstheamountofcashflowdenominatedinaparticularforeigncurrencyjattheendofperiodt,WhereSj,trepresentstheexchangerateatwhichtheforeigncurrencycanbeconvertedintoU.S.dollarsattheendofperiodt.MeasuredinU.S.dollarsperunitoftheforeigncurrency.ChangesintheValueofaMNCValuatio

6、nModelVchangesresultfrom:Changesinforeignmarketconditions:Willimpactonforeigncurrencyearningsandthusonforeigncurrencycashflows(CF).Changesinpoliticalenvironmentandpoliticalrisk(policyofforeigngovernmenttowardsMNC):Willimpactonforeigncurrencyearningsandthusonforeigncurrencycashflo

7、ws(CF).ChangesintheMNC’scostofcapital,i.e.,therequiredreturn(k).Changesintheexchangerateresultingfromexposuretoexchangeraterisk(S);notingthat:StrongerforeigncurrencywillincreaseU.S.dollarequivalentofcashflows.WeakerforeigncurrencywilldecreaseU.S.dollarequivalentofcashflows.Exchan

8、geRateImpactsonOperatingProfitsJapaneseM