EVALUATING THE IMPACT OF INVESTMENT PROJECTS ON THE FIRM'S CURRENCY EXPOSURE

Methods of capital budgeting have been well established in the finance literature as well as in corporate practice. In general, the discounted cash flow methods (IRR, NPV, PI) are considered to be superior. An investment project is therefore acceptable (at least in financial terms) when its net present value is positive or its internal rate of return is above the specified cut‐off rate. In case of capital rationing, we allocate funds and consequently approve projects in descending order of their profitability index to make sure we obtain the maximum present value per dollar invested.