William R. Folks

Critical Assumptions in Evaluating Foreign Investment Projects

This paper addresses certain critical aspects in the technology of the financial analysis of foreign investment projects by the investing concern. Recent pedagogy in the field [2] indicates the desirability of a two-stage or double-hurdle approach to the analysis of such projects. The first hurdle that a project must surmount is an indication of its viability in the local investment environment. The overall project cash flows in local currency are developed from market data and engineering and production studies, and a determination is made using payback, present-value, internal rate-of-return considerations, or whatever, as to whether or not the project is viable in a local economic sense. Failure to meet the local viability test results (or ought to result) in project rejection, regardless of the apparent profitability of the project at the parent.