EECS 1019 Lecture 23: EECS 1019 Lecture 23 Notes
15 Jun 2018
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EECS 1019 Lecture 23 Notes
Introduction
Valuation model for An MNC
• Its international cash flows therefore result either from paying for imported supplies or
from receiving payment in exchange for products that it exports.
• The second diagram illustrates an MNC that engages in some international
arrangements (which could include international licensing, franchising, or joint
ventures).
• Any such arrangement may require cash outflows of the MNC in foreign countries to
cover, for example, the expenses associated with transferring technology or funding
partial investment in a franchise or joint venture.
• These arrangements generate cash flows for the MNC in the form of fees for services
(e.g., technology, support assistance) that it provides.
• The third diagram in Exhibit 1.3 illustrates the case of an MNC that engages in direct
foreign investment.
• This type of MNC has one or more foreign subsidiaries.
• There can be cash outflows from the U.S. parent to its foreign subsidiaries in the form of
invested funds to help finance the operations of the foreign subsidiaries.
• There are also cash flows from the foreign subsidiaries to the U.S. parent in the form of
remitted earnings and fees for services provided by the parent
• All of these flows can be classified as remitted funds from the foreign subsidiaries.
• The value of an MNC is relevant to its shareholders and its debt holders.
• Whe aagers ake deisios that aiize the fir’s alue, the also aiize
shareholder wealth (assuming that the decisions are not intended to maximize the
wealth of debt holders at the expense of shareholders).
• Given that international financial management should be conducted with the goal of
ireasig the MNC’s alue, it is useful to reie soe asis of valuation.
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