advanced valuation issues foreign currency

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1、P1:OTA/XYZP2:ABCc30JWBT347/MckinseyJune4,201016:54PrinterName:Hamilton30ForeignCurrencyTovaluebusinesses,subsidiaries,orcompaniesinforeigncountries,followthesameprinciplesandmethodsthatwepresentedinPartTwo.Fortunately,suchvaluationshavebecomesimpleroverthepastfewyearsasinternational

2、accountingdifferenceshaverapidlydiminished.MostoftheworldsmajoreconomieshavenowadoptedeitherInternationalFinancialReportingStan-dards(IFRS)orU.S.generallyacceptedaccountingprinciples(GAAP),andthesetwostandardsarerapidlyconverging.Also,rememberthatifyoufollowtherecommendationsforrear

3、rangingfinancialstatementsinChapter7,youwillgetidenticalresultsregardlessofwhichaccountingprinciplesyoufollowtopreparethefinancialstatements.Nevertheless,thefollowingissuesarisingincross-bordervaluationsstillneedspecialattention:
Forecastingcashflowsinforeigncurrency(thecurrencyofthefo

4、reignentitytobevalued)anddomesticcurrency(thehomecurrencyofthepersondoingthevaluation).
Estimatingthecostofcapitalinforeigncurrency.
Incorporatingforeign-currencyriskinvaluations.
Usingtranslatedforeign-currencyfinancialstatements.Foreachoftheseissues,thischapterhighlightsthestepstha

5、trequirespecialanalyses.FORECASTINGCASHFLOWSINFOREIGNANDDOMESTICCURRENCYTovalueacompanywithinternationaloperations,firstforecastthecomponentsofcashflowintheirmostrelevantcurrency.ThismeansforecastingtheBritish-poundcashflowsinBritishpounds,theSwiss-franccashflowsinSwissfrancs,andsoon,be

6、forecombiningthemintoasetoffinancialsfortheentirecompany.621P1:OTA/XYZP2:ABCc30JWBT347/MckinseyJune4,201016:54PrinterName:Hamilton622FOREIGNCURRENCYAcompanyvaluationshouldalwaysresultinthesameintrinsicvalueregardlessofthecurrencyormixofcurrenciesinwhichcashflowsarepro-jected.Toachieve

7、thisconsistentoutcome,youneedtouseconsistentmonetaryassumptionsandoneofthefollowingtwomethodsforforecastinganddis-countingforeign-currencycashflows:1.Spotratemethod:Projectforeigncashflowsintheforeigncurrency,anddiscountthemattheforeigncostofcapital.Thenconvertthepresentvalueofthecash

8、flowsintodomesticcur