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Essay / Research Paper Abstract
This 3 page paper examines capital budgeting and explores the differences between the two types. Bibliography lists 5 sources.
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3 pages (~225 words per page)
File: RT13_SA833cap.rtf
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evaluating foreign projects, similar techniques are utilized (Stonehill, Moffet & Dunning, 1993). This is not to say that there are no differences between multinational capital budgeting and domestic capital budgeting.
In fact, there are significant differences. At the same time, both types draw on similar concepts. Models of capital budgeting in general have changed over the years. Early paradigms include
payback models, where length of time necessary for the firm to recover the cash outlay becomes relevant (Cooper, Morgan, Redman & Smith, 2001). Then there are returned on
investment models where projects are evaluated in respect to ordinary cost accounting methodology (Cooper, Morgan, Redman & Smith, 2001). The time value of money is sometimes used in the context
of a different type of model but more recent models include analyses in respect to cost/benefit trade-off for potential projects (Cooper, Morgan, Redman & Smith, 2001). Non-quantifiable factors are also
a part of the newer models (Cooper, Morgan, Redman & Smith, 2001). Today, it is the case that computer programs are available to assist accountants at many organizations. For examples,
Amerinet is now using Memdata software to enhance its capital budgeting techniques ("Amerinet, Inc.," 2007). Whether or not a company makes use of new software, or does it the old
fashioned way, capital budgeting is quite important in the scheme of things. While all of the models are useful, it pays to look at the difference between the budgeting
techniques used in respect to multinational projects and domestic ones. Today, multinational firms rely on certain capital budgeting techniques in order to evaluate their foreign direct investment decisions (Riahi-Belkaoui, 2001).
Using stockholders wealth maximization model, they often use capital budgeting techniques for both domestic and international purposes (Riahi-Belkaoui, 2001). The author writes: "Multinational capital budgeting is a direct consequence of
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