Deck 15: Multinational Restructuring

Question 1

The target's board has indicated that it finds a premium of 30 percent appropriate.You have been asked to negotiate for Klimewsky with the Malaysian target.What is the maximum percentage premium you should be willing to offer

A) 30.0%.
B) 25.9%.
C) you should not offer any premium because the market's valuation is below Klimewsky's valuation.
D) none of the above

Answer 1

B

Question 2

Even if an existing business adds value to an MNC,it may be worthwhile to assess whether the business would generate more value to the MNC if it was restructured.

Answer 2

True

Question 3

At present,U.S.firms acquire more targets in the former Soviet Union than in any other country.

Answer 3

False

Question 4

A previously undertaken project in a foreign country may no longer be feasible because:

A) the MNC is unable to raise sufficient funds in order to undertake the project.
B) the MNC's cost of capital has decreased.
C) the host government has increased its tax rates substantially.
D) exchange rate projections changed from a depreciation to an appreciation of the foreign currency.

Question 5

Based on the information provided above,the net present value of the Malaysian target is $_______ million.

A) 155.9
B) 111.5
C) 138.0
D) 143.0
E) none of the above

Question 6

Which of the following is not an example of multinational restructuring

A) An MNC builds a new subsidiary in Malaysia.
B) An MNC acquires a company in Germany.
C) An MNC downsizes its operations in Hong Kong.
D) An MNC shifts some production from its Swiss subsidiary to its Dutch subsidiary.
E) All of the above are examples of multinational restructuring.

Question 7

Which of the following is not true regarding a target's previous cash flows

A) They may serve as an initial base from which future cash flows may be estimated after accounting for other factors.
B) It may be easier to estimate the cash flows to be generated by a target than to estimate the cash flows to be generated from a new foreign subsidiary.
C) They are always good indicators of future cash flows.
D) All of the above are true.

Question 8

Based on information in your text,the following factors should be considered in an international acquisition,except:

A) the target's willingness to be acquired.
B) the target's previous acquisition history.
C) the target's previous cash flows.
D) the target's local economic conditions.

Question 9

The U.S.is one of the few countries with agencies that monitor mergers and acquisitions.

Question 10

Which of the following tax-related factors need not be considered in assessing a foreign target

A) corporate tax rates in the host country.
B) withholding tax rates in the host country.
C) withholding tax rates in the home country.
D) corporate tax rates in the home country.
E) all of the above must be considered in assessing a foreign target.

Question 11

Since the cash flows generated by a foreign target will eventually be converted to the parent's currency,there is no need to consider the foreign exchange rate in the capital budgeting process.

Question 12

Which of the following is not an advantage of international acquisitions over the establishment of a new subsidiary

A) The firm can immediately expand its international business.
B) The firm benefits from existing customer relationships.
C) International acquisitions are generally cheaper than the establishment of a new subsidiary.
D) An international acquisition typically generates quicker and larger cash flows than the establishment of a new subsidiary.
E) All of the above are advantages of international acquisitions.

Question 13

Which of the following would probably not cause the stock price of a foreign target to decrease

A) Its expected cash flows decline.
B) General stock market conditions in the foreign country are deteriorating.
C) Investors anticipate that the target will be acquired.
D) All of the above will cause the target's stock price to decrease.

Question 14

According to your text,many more international acquisitions are taking place in __________,
Partially because of more uniform standards and the momentum for free enterprise.

A) Europe
B) Latin America
C) Asia
D) Africa
E) none of the above

Question 15

Most countries discourage hostile takeovers.

Question 16

The Malaysian target's value based on its stock price is $________ million.

A) 1.4
B) 1,673.9
C) 111.5
D) 88.6
E) none of the above

Question 17

As far as the managerial talent of the target is concerned:

A) the manner in which the acquirer plans to deal with the managerial talent will affect the estimated cash flows to be generated by the target.
B) downsizing will reduce expenses and increase productivity and revenues.
C) governments of some countries are likely to intervene and prevent the acquisition if downsizing is anticipated.
D) A and C only
E) all of the above

Question 18

Which of the following types of international restructuring is probably the most difficult to value by an MNC

A) international acquisition.
B) newly privatized foreign business.
C) international alliance.
D) international divestiture.

Question 19

An international alliance typically requires a __________ initial outlay than an international acquisition,and the cash flows to be received will typically be _________ than the cash flow resulting from an international acquisition.

A) smaller;larger
B) smaller;smaller
C) larger;smaller
D) larger;larger

Question 20

Which of the following factors is least likely to cause the required rate of return to vary among MNCs assessing the same foreign target

A) differences in the timing of remittances from the target to the parent.
B) differences in the desired use of the target.
C) differences in the local risk-free interest rate.
D) differences in the ability to use financial leverage.

Question 21

An acquirer based in a low-tax country may be able to generate higher cash flows from acquiring a foreign target than an acquirer based in a high-tax country.

Question 22

The valuation of newly privatized businesses is generally more difficult than the valuation of a foreign target that has operated privately for several years.

Question 23

Even if an existing business adds value to the MNC,it may be worthwhile to assess whether the business would generate more value to the MNC if it was restructured.

Question 24

Privatization involves the sale of previously government-owned businesses by the government.

Question 25

The initial outlay for a project in a foreign country may decline if property values in that country decline.

Question 26

Regarding the valuation of privatized business in less developed countries,__________ can normally be estimated with a high degree of accuracy.

A) future cash flows
B) future exchange rate movements
C) the proper discount rate
D) none of the above

Question 27

An MNC's parent would consider investing in a target only if the estimated present value of the cash flows it would ultimately receive from the target over time ________ the initial outlay necessary to purchase the target.

A) is less than
B) is the same as
C) is greater than
D) none of the above

Question 28

Other things being equal,a foreign subsidiary in China would more likely be divested by the U.S.parent if new information caused the parent to suddenly anticipate that:

A) the Chinese yuan would depreciate in the future.
B) the Chinese yuan would appreciate in the future.
C) the Chinese yuan would remain somewhat stable in the future.
D) none of the above;the value of the Chinese yuan has no impact on the feasibility of a divestiture.

Question 29

Firms based in __________ tend to acquire more U.S.target firms than the other countries listed here.

A) Canada
B) Japan
C) Germany
D) Mexico

Question 30

An MNC should periodically reassess its investments to determine whether to divest them.

Question 31

A foreign target's expected future cash flows generally vary among different MNCs valuing the target.

Question 32

An international acquisition is different from the establishment of a new subsidiary in that the MNC can immediately expand its international business since the target is already in place.

Question 33

An MNC that plans to acquire a target would prefer to time its bid for the target when the local stock market prices are generally high.

Question 34

The value of an MNC (from the parent's perspective)is independent of the MNC's desired scheduling of remitted funds from the target.

Question 35

Premiums required to entice a target's board of directors to approve an acquisition are usually between 1 and 3 percent of the target's market price.

Question 36

Which of the following is not directly considered in the decision by a U.S.based MNC to divest a subsidiary

A) the required rate of return on the subsidiary.
B) forecasted exchange rates of the subsidiary's currency relative to the dollar.
C) the initial outlay on the project.
D) the possible selling price of the project.

Question 37

If potential acquirers are based in different countries,their required rates of return when considering a specific target will only vary if the desired use of the target is different.

Question 38

U.S.firms acquire more target firms in __________ than in any other country.

A) Germany
B) Mexico
C) France
D) United Kingdom

Question 39

Acquirers may have different required rates of return because of differences in the ability to use financial leverage.

Question 40

From a foreign currency perspective,the ideal conditions would be a weak foreign currency at the time of acquisition and a strengthening of the foreign currency over time as funds are remitted back to the parent.

Question 41

An MNC that plans to acquire a target would prefer to make a bid at a time when the local stock market prices are generally _______.Assume that economic conditions are held constant when completing this statement.

A) low
B) high
C) volatile
D) none of the above

Question 42

Even after an MNC's accept/reject decision of a foreign acquisition has been made,it should be reassessed at various times.In fact,this analysis may indicate that a previously accepted project should be divested.

Question 43

Potential targets in countries where economic conditions are ________ are more likely to experience strong demand for their products in the future and may generate ________ cash flows.

A) strong;lower
B) weak;higher
C) weak;lower
D) strong;higher

Question 44

Which of the following is not a reason that the initial outlay for acquiring a firm in Asia was lower as a result of the Asian crisis

A) Property values in Asia had declined.
B) The parent's currency (for parents in the United States of Europe) has less purchasing power due to the weakening of the Asian currencies.
C) Many firms in Asia were near bankruptcy and were unable to obtain necessary funding.
D) The governments in Asian countries were more willing to allow foreign acquisitions of local firms as a means of resolving the crisis.

Question 45

An international acquisition may be preferable to the establishment of a new subsidiary because the firm can immediately expand its international business and benefit from existing customer relationships.

Question 46

If the foreign currency ___________ by the time the acquirer makes payment,the acquisition will be more costly,and the cost of the acquisition changes __________ the change in the exchange rate.

A) appreciates;by a lesser percentage then
B) depreciates;in the same proportion as
C) appreciates;in the same proportion as
D) appreciates;by a greater percentage than

Question 47

When an MNC assesses targets among countries,it would prefer a country where the growth potential for its industry is ______ and the competition within the industry is ________.

A) low;not excessive
B) high;excessive
C) high;not excessive
D) low;excessive

Question 48

If a target is privately held,general stock market conditions will not affect the amount that an acquirer has to pay for a foreign target.

Question 49

The earnings of a private European firm are €5 million,and the average P/E ratio of publicly traded European firms in the same industry is 12.This firm is considering the possibility of going public in which it would issue one million shares.If the private firm has similar growth potential and other characteristics similar to other publicly traded firms in the industry,its value can be estimated as ______ million euros.

A) 2.4
B) 60.0
C) 41.7
D) 12

Question 50

The adoption of the euro as the local currency by several European countries has ___________ capital budgeting analysis for an MNC that is comparing possible target firms in those countries.

A) simplified
B) complicated
C) had no effect on
D) none of the above

Question 51

A target's previous cash flows are typically an accurate indicator of future cash flows,especially when the target's cash flows would have to be converted into the acquirer's home currency as they are remitted to the parent.

Question 52

If an MNC targets a successful foreign company with plans to continue the target's local business in a more efficient manner,the risk of the business will be relatively _______,and therefore the MNC's required return from acquiring the target will be relatively _______.

A) high;high
B) high;low
C) low;high
D) low;low