International Capital Budgeting
Question
1. How does international capital budgeting differ from domestic capital budgeting? Many firms, when assessing international projects, apply a premium to required returns to get an adjusted discount rate that reflects the international risk. Explain by using arguments from the CAPM why this is a poor approach for risk adjustments.
2. Assume that I do not want to spend the time and money to monitor the current owner's expenses. I suggest a deal wherein I get 25% of the gross rather than 50% of the net. Since the net margin is 50%, I argue that my expected return hasn't changed, so the purchase price should be the same as in 1).
a. Is this true? Why or why not?