A stock market-driven reformulation of multinational capital budgeting

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.