Question 1

A foreign firm that is 20% to 49% owned by a parent is called a/an:

Accepted Answer

A) subsidiary. 
B) affiliate. 
C) partner. 
D) rival. 
A) subsidiary. 
B) affiliate. 
C) partner. 
D) rival.

Question 2

Which of the following is NOT an example of political risk?

Accepted Answer

A) Expropriation of cash flows by a foreign government. 
B) The U.S.government restricts trade with a foreign country where your firm has investments. 
C) The foreign government nationalizes all foreign-owned assets. 
D) All of the above are examples of political risk. 
A) Expropriation of cash flows by a foreign government. 
B) The U.S.government restricts trade with a foreign country where your firm has investments. 
C) The foreign government nationalizes all foreign-owned assets. 
D) All of the above are examples of political risk.

Question 3

In international capital budgeting,the appropriate discount rate for determining the present value of the expected cash flows is always the firm's domestic WACC.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is NOT a reason why capital budgeting for a foreign project is more complex than for a domestic project?

Accepted Answer

A) Parent cash flows must be distinguished from project cash flows. 
B) Parent firms must specifically recognize remittance of funds due to differing rules and regulations concerning remittance of cash flows,taxes,and local norms. 
C) Differing rates of inflation exist between the foreign and domestic economies. 
D) All of the above add complexity to the international capital budgeting process. 
A) Parent cash flows must be distinguished from project cash flows. 
B) Parent firms must specifically recognize remittance of funds due to differing rules and regulations concerning remittance of cash flows,taxes,and local norms. 
C) Differing rates of inflation exist between the foreign and domestic economies. 
D) All of the above add complexity to the international capital budgeting process.

Question 5

For purposes of international capital budgeting,it is NOT important to distinguish between parent and total project cash flows.

Accepted Answer

A) True 
 B)False

Question 6

A criticism of adjusting the discount rate to account for political risk is that adjusting the discount rate for political risk penalizes early cash flows too heavily while not penalizing distant cash flows enough.

Accepted Answer

A) True 
 B)False

Question 7

Real option analysis allows managers to analyze all of the following EXCEPT:

Accepted Answer

A) the option to defer 
B) the option to abandon 
C) the option to alter capacity 
D) All of the above may be analyzed using real option analysis. 
A) the option to defer 
B) the option to abandon 
C) the option to alter capacity 
D) All of the above may be analyzed using real option analysis.

Question 8

The drivers of international merger and acquisitions are only MACRO in scope.

Accepted Answer

A) True 
 B)False

Question 9

It is important that firms adopt a common standard for the capital budgeting process for choosing among foreign and domestic projects.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following changes does NOT create business opportunities for select firms to both enhance and defend their competitive positions in global markets?

Accepted Answer

A) Changes in technology 
B) Changes in regulation 
C) Changes in capital markets 
D) Changes in management 
A) Changes in technology 
B) Changes in regulation 
C) Changes in capital markets 
D) Changes in management

Question 11

Project financing is the arrangement of financing for very large individual long-term capital projects.

Accepted Answer

A) True 
 B)False

Question 12

Multinational firms should invest only if they can earn a risk-adjusted return greater than locally based competitors can earn on the same project.

Accepted Answer

A) True 
 B)False

Question 13

Project evaluation from the ________ viewpoint serves some useful purposes and/but should ________ the ________ viewpoint.

Accepted Answer

A) local;be subordinated to;parent's 
B) local;not be subordinated to;parent's 
C) parent's;be subordinated to;local 
D) none of the above 
A) local;be subordinated to;parent's 
B) local;not be subordinated to;parent's 
C) parent's;be subordinated to;local 
D) none of the above

Question 14

Which of the following is NOT a factor critical to the success of project financing?

Accepted Answer

A) separability of the project from its investors 
B) long-lived and capital intensive singular projects 
C) cash flow predictability from third part commitments 
D) All of the above are critical factors for project financing. 
A) separability of the project from its investors 
B) long-lived and capital intensive singular projects 
C) cash flow predictability from third part commitments 
D) All of the above are critical factors for project financing.

Question 15

The process of acquiring an enterprise anywhere in the world has three common elements EXCEPT:

Accepted Answer

A) identification and valuation of the target 
B) execution of the acquisition offer and purchase-the tender 
C) management of the post-acquisition transition 
D) All of the above are common elements in acquiring an enterprise anywhere in the world. 
A) identification and valuation of the target 
B) execution of the acquisition offer and purchase-the tender 
C) management of the post-acquisition transition 
D) All of the above are common elements in acquiring an enterprise anywhere in the world.

Question 16

For purposes of international capital budgeting,parent cash flows often depend on the form of financing.Thus,we cannot clearly separate cash flows from financing decisions,as we can in domestic capital budgeting.

Accepted Answer

A) True 
 B)False

Question 17

In project finance,retained earnings and the reinvestment of earnings are the most important decisions to guarantee the long term growth of the project's value.

Accepted Answer

A) True 
 B)False

Question 18

Instruction 18.1:
Use the information to answer the following question(s).
The Velo Rapid Revolutions Inc. ,a company that produces bicycles,elliptical trainers,scooters and other wheeled non-motorized recreational equipment is considering an expansion of their product line to Europe.The expansion would require a purchase of equipment with a price of euro 1,200,000 and additional installation of euro 300,000 (assume that the installation costs cannot be expensed,but rather,must be depreciated over the life of the asset).Because this would be a new product,they will not be replacing existing equipment.The new product line is expected to increase revenues by euro 600,000 per year over current levels for the next 5 years,however;expenses will also increase by euro 200,000 per year.(Note: Assume the after-tax operating cash flows in years 1-5 are equal,and that the terminal value of the project in year 5 may change total after-tax cash flows for that year. )The equipment is multipurpose and the firm anticipates that they will sell it at the end of the five years for euro 500,000.The firm's required rate of return is 12% and they are in the 40% tax bracket.Depreciation is straight-line to a value of euro 0 over the 5-year life of the equipment,and the initial investment (at year 0)also requires an increase in NWC of euro 100,000 (to be recovered at the sale of the equipment at the end of five years).The current spot rate is $0.95/euro ,and the expected inflation rate in the U.S.is 4% per year and 3% per year in Europe.
-Refer to Instruction 18.1.What is the NPV of the European expansion if Velo Rapid Revolutions first computes the NPV in euros and then converts that figure to dollars using the current spot rate?

Accepted Answer

A) $1,520,000 
B) $1,684,210 
C) -$75,310 
D) -$71,544 
A) $1,520,000 
B) $1,684,210 
C) -$75,310 
D) -$71,544

Question 19

Of the following capital budgeting decision criteria,which does NOT use discounted cash flows?

Accepted Answer

A) net present value 
B) internal rate of return 
C) accounting rate of return 
D) All of these techniques typically use discounted cash flows. 
A) net present value 
B) internal rate of return 
C) accounting rate of return 
D) All of these techniques typically use discounted cash flows.

Question 20

Explain how political risk and exchange rate risk increase the uncertainty of international projects for the purpose of capital budgeting.

Accepted Answer

The evaluation of foreign projects must

A foreign firm that is 20% to 49% owned by a parent is called a/an:

Which of the following is NOT an example of political risk?

In international capital budgeting,the appropriate discount rate for determining the present value of the expected cash flows is always the firm's domestic WACC.

Which of the following is NOT a reason why capital budgeting for a foreign project is more complex than for a domestic project?

For purposes of international capital budgeting,it is NOT important to distinguish between parent and total project cash flows.

A criticism of adjusting the discount rate to account for political risk is that adjusting the discount rate for political risk penalizes early cash flows too heavily while not penalizing distant cash flows enough.

Real option analysis allows managers to analyze all of the following EXCEPT:

The drivers of international merger and acquisitions are only MACRO in scope.

It is important that firms adopt a common standard for the capital budgeting process for choosing among foreign and domestic projects.

Which of the following changes does NOT create business opportunities for select firms to both enhance and defend their competitive positions in global markets?

Project financing is the arrangement of financing for very large individual long-term capital projects.

Multinational firms should invest only if they can earn a risk-adjusted return greater than locally based competitors can earn on the same project.

Project evaluation from the viewpoint serves some useful purposes and/but should the viewpoint.

Which of the following is NOT a factor critical to the success of project financing?

The process of acquiring an enterprise anywhere in the world has three common elements EXCEPT:

For purposes of international capital budgeting,parent cash flows often depend on the form of financing.Thus,we cannot clearly separate cash flows from financing decisions,as we can in domestic capital budgeting.

In project finance,retained earnings and the reinvestment of earnings are the most important decisions to guarantee the long term growth of the project's value.

Of the following capital budgeting decision criteria,which does NOT use discounted cash flows?

Explain how political risk and exchange rate risk increase the uncertainty of international projects for the purpose of capital budgeting.

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives: Futures and Options

Interest Risk and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Filters

Exam 18: Multinational Capital Budgeting and Cross-Border Acquisitions

A foreign firm that is 20% to 49% owned by a parent is called a/an:

Which of the following is NOT an example of political risk?

In international capital budgeting,the appropriate discount rate for determining the present value of the expected cash flows is always the firm's domestic WACC.

Which of the following is NOT a reason why capital budgeting for a foreign project is more complex than for a domestic project?

For purposes of international capital budgeting,it is NOT important to distinguish between parent and total project cash flows.

A criticism of adjusting the discount rate to account for political risk is that adjusting the discount rate for political risk penalizes early cash flows too heavily while not penalizing distant cash flows enough.

Real option analysis allows managers to analyze all of the following EXCEPT:

The drivers of international merger and acquisitions are only MACRO in scope.

It is important that firms adopt a common standard for the capital budgeting process for choosing among foreign and domestic projects.

Which of the following changes does NOT create business opportunities for select firms to both enhance and defend their competitive positions in global markets?

Project financing is the arrangement of financing for very large individual long-term capital projects.

Multinational firms should invest only if they can earn a risk-adjusted return greater than locally based competitors can earn on the same project.

Project evaluation from the ________ viewpoint serves some useful purposes and/but should ________ the ________ viewpoint.

Which of the following is NOT a factor critical to the success of project financing?

The process of acquiring an enterprise anywhere in the world has three common elements EXCEPT:

For purposes of international capital budgeting,parent cash flows often depend on the form of financing.Thus,we cannot clearly separate cash flows from financing decisions,as we can in domestic capital budgeting.

In project finance,retained earnings and the reinvestment of earnings are the most important decisions to guarantee the long term growth of the project's value.

Of the following capital budgeting decision criteria,which does NOT use discounted cash flows?

Explain how political risk and exchange rate risk increase the uncertainty of international projects for the purpose of capital budgeting.

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives: Futures and Options

Interest Risk and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Filters

Project evaluation from the viewpoint serves some useful purposes and/but should the viewpoint.