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International operations and international investment appraisal

2.5 Remittance restrictions

Foreign governments sometimes place a limit on the funds that can be
repatriated. This may change the cash flows that are received in the
home country.

The actual amount received in the home country is the relevant cash
flow for investment appraisal purposes.

Example 3

If a company expects to generate FCF of $5 million each year from a foreign
investment project, but the foreign government only allows 50% of the cash to
be repatriated, the investment should be appraised based on cash flows of
$2.5 million per year.

Illustrations and further practice

Now try Illustration 5 in Chapter 3

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