Capital budgeting questions | Business & Finance homework help
2. Local Regulations and Laws: Depending on the location of a potential project, companies may be required to abide by certain local regulations or laws in order for an investment to be approved or even feasible. These can range from environmental regulations to labor standards that might not necessarily exist elsewhere globally.
3. Exchange Rates: Currency exchange rates can fluctuate significantly over time which could affect any costs associated with a particular project, particularly when investments are denominated in a foreign currency versus the home currency of the company’s headquarters. Organizations must plan carefully to ensure they are able to absorb any volatility that may arise during implementation of their projects overseas and have strategies in place for managing foreign exchange risk if needed.
4. Political Risk: Companies need to be aware of political developments within each country they are considering investing capital into as this can significantly impact their return on investment (ROI). Political instability due to internal conflicts or changes in leadership could lead companies having difficulty recouping their initial investments if they do not assess these risks beforehand.