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A stock market-driven reformulation of multinational capital budgeting

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  • Edmunds, John C.
  • Ellis, David M.

Abstract

A method for ranking cross-border capital investment projects is proposed which makes direct use of stock-market valuation standards. The contribution of each proposed project is ranked according to how much the project would add to stock-market valuation of the parent company. The host country stock-market multiple is used when the proposed investment project will be in a subsidiary located in that host country. Three projects are ranked using the conventional method, the adjusted present value method, and the stock-market-driven method. The rankings come out 1,2,3; 2,1,3; and 3,1,2. The intent of this paper is to cast doubt on the ranking methods that are currently in use, by showing a method that gives a different, and apparently superior, ranking.

Suggested Citation

  • Edmunds, John C. & Ellis, David M., 1999. "A stock market-driven reformulation of multinational capital budgeting," European Management Journal, Elsevier, vol. 17(3), pages 310-317, June.
    • Handle: RePEc:eee:eurman:v:17:y:1999:i:3:p:310-317
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