Question 1

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.

Accepted Answer

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

Question 2

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

Accepted Answer

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 3

Most countries discourage hostile takeovers.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

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

Question 7

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

Accepted Answer

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 8

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.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

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 10

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

Accepted Answer

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

Question 11

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.

Accepted Answer

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

Question 12

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.

Accepted Answer

A) True 
 B)False

Exam 15: Multinational Restructuring

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.

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

Most countries discourage hostile takeovers.

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

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.

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

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

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.

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

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.

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.