Capital Budgeting and the Multinational Corporation

Robock Stefan , “Overseas Financing for U.S. International Business,” Journal of Finance, May 1966, p. 298.

Ibid., pp. 300–302.

Merrett A. J. Sykes Allen , The Finance and Analysis of Capital Projects (London, England: Longmans Green and Company, Ltd., 1963), Chap. 13. Reprinted in Coyle Mock , ed., Readings in International Business (Scranton, Pennsylvania: International Textbook Company, 1965), pp. 324–331.

Smith Dan Throop , “Financial Variables in International Business,” Harvard Business Review, Jan.-Feb. 1966, p. 94.

Gaddis Paul O. , “Analyzing Overseas Investments,” Harvard Business Review, May-June 1966, pp. 115–122.

Pryor Millard H. , “Planning in a Worldwide Business,” Harvard Business Review, Jan.-Feb. 1965, pp. 130–139.

Fredrickson E. Bruce , “Security Analysis and the Multinational Corporation,” Financial Analysts Journal, Sept.-Oct. 1965, pp. 109–117.

Bugnion J. R. , “Capital Budgeting and International Corporations,” Revue économiques et sociale, Sept. 1965. Reprinted in Quarterly Journal of A.I.E.-S.E.C. International, Nov. 1965, pp. 30–54.

U.S. Production Abroad and the Balance of Payments (New York: National Industrial Conference Board, 1966), p. 63.

Dean Joel , Capital Budgeting (New York: Columbia Univ. Press, 1951).

See Cyert Richard March James , A Behavioral Theory of the Firm (Englewood Cliffs, N.J.: Prentice-Hall, Inc., 1963).

See Baumol William , Economic Theory and Operations Analysis (Englewood Cliffs, N.J.: Prentice-Hall, Inc., 1965), Chap. 13.

Miller Merton H. Modigliani Franco , “Some Estimates of the Cost of Capital to the Electric Utility Industry, 1954–1957,” American Economic Review, June 1966, p. 373.

Gordon Myron , The Investment, Financing and Valuation of the Corporation (Homewood, Ill.: Richard D. Irwin, Inc., 1962).

Lintner John , “Optimum Dividends and Corporate Growth Under Uncertainty,” Quarterly Journal of Economics, Feb. 1964, pp. 49–95.

Porterfield James T. , Investment Decisions and Capital Costs (Englewood Cliffs, N.J.: Prentice-Hall, Inc., 1965), p. 17.

A recent example of government interference on behalf of its investors occurred in Norway in 1962. The Norwegian government renegotiated a direct investment concession agreement with Swiss Aluminum Ltd. The original concession was supposed to permit establishment of an aluminum smelter in Norway as a joint venture with 50 per cent Norwegian equity participation. The terms of payment for “know-how” to the Swiss company and the manner in which these terms were imposed on potential Norwegian investors made the eventual common stock offering in Norway so unpopular that only a fraction of the shares were sold. The Norwegian government eventually bought enough of the unsold shares to bring Norwegian ownership up to 20 per cent. Now the Swiss must operate as partners with the Norwegian government, rather than with Norwegian private investors.

As a rule, foreign subsidiaries cannot be consolidated with their parent corporation for tax purposes under U.S. laws. There are exceptions under certain conditions for Canada and Mexico.

For a mathematical programming approach, see Weingartner H. Martin , Mathematical Programming and the Analysis of Capital Budgeting Problems (Englewood Cliffs, N.J.: Prentice-Hall, Inc., 1963).

There would be a net tax liability to the U.S. if the tax credit for income and withholding taxes paid to the United Kingdom on the earnings of ABC-UK which have generated the dividend were less than the deferred United States tax on those earnings.

Section 482, U.S. Internal Revenue Code, allows tax authorities to reallocate income and expenses among related companies to reflect “arms length” prices.

To get a flavor of the controversy, see Solomon Ezra , The Theory of Financial Management (New York: Columbia Univ. Press, 1963) and Modigliani Miller , “Corporate Income Taxes and the Cost of Capital: A Correction,” American Economic Review, June 1963, pp. 433–443.

See Aharoni Yair , The Foreign Investment Decision Process (Boston: Harvard Graduate School of Business, Division of Research, 1966).