Question

Explain the main differences between estimating the NPVs for a foreign project and pure a domestic project.

Answer 1

Main differences between estimation of net present value of a foreign product and pure domestic product would be as follows-

A. Discounting rate which are to be used in foreign projects would be taken in after ascertainment of cost of capital of operation into different countries whereas discounting rate which is to be ascertained in regards to domestic projects would be taken after discounting of the cost of capital of the domestic industry.

B. Cash flows related to foreign projects should be discounted after consideration of the exchange rates whereas cash flows related to domestic projects should not be considering foreign exchange rate fluctuations

C. Various kind of monetary policy risk and geo political risk are to be considered when discounting a foreign project whereas only domestic factors are to be concerned and discounting a pure domestic project.

D. Risk adjustment will be done after consideration of the foreign policies in regarding forest projects where as risk adjustment in respect to Domestic Product should only be considered after domestic considerations.

these are the primary differences between estimation of the net present value for a foreign project and a pure domestic project.