Investment appraisal

In this lesson

1. 0:00 International investment appraisal overview
2. 3:27 Double taxation treaties explained
3. 5:23 Intercompany cash flows and tax treatment
4. 9:05 Remittance restrictions and exchange controls
5. 11:46 Working capital in overseas projects
6. 15:02 Building an international NPV calculation
7. 20:26 Converting accounting data to free cash flows

About this lesson

International investment appraisal extends the NPV techniques you already know by introducing additional complexities: forecasting future exchange rates using purchasing power parity or interest rate parity theory, handling double taxation treaties, managing intercompany cash flows between overseas and home operations, and accounting for remittance restrictions and exchange controls imposed by governments. The lesson walks you through the three scenarios you'll encounter with double taxation treaties: when overseas tax rates are lower (no additional tax), when they're equal (tax once), and when home country rates are higher (you pay the difference). You'll see how to calculate tax liabilities across countries and reconcile them, then move on to handling intercompany cash flows—such as royalty payments, management charges, and transfer pricing—which reduce overseas tax but create additional home country tax exposure. The video also covers how remittance restrictions limit the profits you can send back to the parent company, reducing your additional tax burden, and how exchange controls restrict currency movement. Working capital in international projects follows the same principles as domestic NPV: only changes in working capital create cash flows, and you must apply the inflation rate of the overseas country to project working capital growth year on year. The lesson then brings it all together, showing you how to construct a complete international investment NPV pro forma: start with overseas cash flows, convert to home currency using exchange rate forecasts, add any additional home cash flows, and discount at the home company's cost of capital. Finally, you'll learn how to extract free cash flows from accounting information when appraising a foreign acquisition, adjusting for tax, adding back depreciation, deducting capital expenditure, and converting to home currency.

Duration: 24m