AES Corporation: International Finance Case Study Report

This case study analyzes AES Corporation's financial challenges, particularly its cost of capital and capital budgeting strategies in international markets. The report examines the company's shift from a fixed 12% discount rate to a new methodology incorporating country and project-specific risks. The analysis highlights the limitations of the current method and the advantages and disadvantages of the proposed new methodology. The study also includes a comparison of the two methods, providing recommendations to enhance the model's validity, such as incorporating scenario analysis to account for additional risks associated with foreign countries. The case study underscores the importance of adapting financial strategies to navigate the complexities of global operations, including legal and regulatory barriers, government stability, and currency exchange volatility. It concludes that the new methodology can improve the company's capital structure.