Question 1

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.

Accepted Answer

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

Question 2

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

Accepted Answer

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

Question 3

Which of the following is not an example of multinational restructuring

Accepted Answer

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. E

Question 4

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.

Accepted Answer

A) True 
 B)False

Question 5

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.

Accepted Answer

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 6

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

Accepted Answer

A) True 
 B)False

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

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

Question 9

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.

Accepted Answer

A) True 
 B)False

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

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.

Accepted Answer

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

Question 12

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

Accepted Answer

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 13

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 ________.

Accepted Answer

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

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Klimewsky, Inc., a U.S.-based MNC, has screened several targets. Based on economic and political considerations, only one eligible target remains in Malaysia. Klimewsky would like you to value this target and has provided you with the following information:

•	Klimewsky expects to keep the target for three years, at which time it expects to sell the firm for 500 million Malaysian ringgit (MYR) after deducting the amount for any taxes paid.

•	Klimewsky expects a strong Malaysian economy. Consequently, the estimates for revenues for the next year are MYR300 million. Revenues are expected to increase by 9% over the following two years.

•	Cost of goods sold are expected to be 60% of revenues.

•	Selling and administrative expenses are expected to be MYR40 million in each of the next three years.

•	The Malaysian tax rate on the target's earnings is expected to be 30%.

•	Depreciation expenses are expected to be MYR15 million per year for each of the next three years.

•	The target will need MYR9 million in cash each year to support existing operations.

•	The target's current stock price is MYR35 per share. The target has 11 million shares outstanding.

•	Any cash flows remaining after taxes are remitted by the target to Klimewsky, Inc. Klimewsky uses the prevailing exchange rate of the Malaysian ringgit as the expected exchange rate for the next three years. This exchange rate is currently $.23.

•	Klimewsky's required rate of return on similar projects is 13%.

-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

Accepted Answer

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

Question 16

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.

Accepted Answer

A) True 
 B)False

Question 17

Klimewsky, Inc., a U.S.-based MNC, has screened several targets. Based on economic and political considerations, only one eligible target remains in Malaysia. Klimewsky would like you to value this target and has provided you with the following information:

•	Klimewsky expects to keep the target for three years, at which time it expects to sell the firm for 500 million Malaysian ringgit (MYR) after deducting the amount for any taxes paid.

•	Klimewsky expects a strong Malaysian economy. Consequently, the estimates for revenues for the next year are MYR300 million. Revenues are expected to increase by 9% over the following two years.

•	Cost of goods sold are expected to be 60% of revenues.

•	Selling and administrative expenses are expected to be MYR40 million in each of the next three years.

•	The Malaysian tax rate on the target's earnings is expected to be 30%.

•	Depreciation expenses are expected to be MYR15 million per year for each of the next three years.

•	The target will need MYR9 million in cash each year to support existing operations.

•	The target's current stock price is MYR35 per share. The target has 11 million shares outstanding.

•	Any cash flows remaining after taxes are remitted by the target to Klimewsky, Inc. Klimewsky uses the prevailing exchange rate of the Malaysian ringgit as the expected exchange rate for the next three years. This exchange rate is currently $.23.

•	Klimewsky's required rate of return on similar projects is 13%.

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

Accepted Answer

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

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

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 20

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

Accepted Answer

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.

Exam 15: Multinational Restructuring

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.

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

Which of the following is not an example of multinational restructuring

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.

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.

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

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.

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

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.

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.

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.

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

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

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.

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.

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

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