Introduction
          Scope of financial management includes 
              three sets of related decisions:
                Investment decisions, decisions about what 
                   activities to finance.
                Financing decisions, decisions about how to 
                   finance those activities.
                Money management decisions, decisions about 
                   how to manage the firm’s financial resources 
                   most efficiently.
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                            Investment Decisions
      Capital budgeting:
           quantifies the benefits, costs and risks of an                 investment.
           Managers can reasonably compare different                  investment 
              alternatives within and across countries.
      Complicated process:
           Must distinguish between cash flows to project and those to parent.
           Political and economic risk can change the value of a foreign 
              investment.
           Connection between cash flows to parent and the source of 
              financing must be recognized.
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               Project and Parent Cash Flows
                             Project cash flows may not reach the 
                                parent:
                                   Host-country may block cash-flow 
                                     repatriation.
                                   Cash flows may be taxed at an 
                                     unfavorable rate.
                                   Host government may require a 
                                     percentage of cash flows to be 
                                     reinvested in the host country.
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                     Adjusting for Political and 
                                     Economic Risk
             Political risk:
                   Expropriation - Iranian revolution, 1979.
                   Social unrest - after the breakup of Yugoslavia, 
                      company assets were rendered worthless.
                   Political change - may lead to tax and 
                      ownership changes.
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                      Euromoney Magazine’s    
                            Country Risk Ratings
                  Total score = 100
                          100
                            90
                            80                                                                 Highest and lowest 
                            70                                                                 ranked countries.
                            60
                            50
                            40
                            30
                            20
                            10
                             0      x      A       r      h      a      n      n      r
                                    u      S       e      t      d      i      a      a
                                                          e      u      n      j      c
      Adapted from                  L      U       G      N             e      i      s
                                                                 m      B      a      a
                                                                 r             b      g
      Table 20.1                                                 e             r      a
                                                                 B             e      d
                                                                               z      a
      in text                                                                  A      M
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