Capital Budgeting in International Joint Ventures

Capital Budgeting
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sushant dixit
Student (MBA), India

Capital Budgeting in International Joint Ventures

How is financing done in capital budgeting when project is under a 50:50 joint venture of two firms, one in the home country and one in a foreign country?

  Leon Ploubidis
Manager, Australia
 

Capital Budgeting in International Joint Ventures

Fundamentally, it's done at the JV firm level, as a stand-along entity, like any capital budgeting exercise. The model drivers are specific to the country in which the JV operates. For example, the cost of capital etc. will be specific to the local environment.
At the shareholder level, each firm would simply account for their respective 50% of the JV entity's NPV (and add this to their own company's valuation), adjusting for currency risk, foreign tax implications etc.

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