Exam 15: International Corporate Governance and Control

If a subsidiary project is assessed from the subsidiary's perspective, then an expected appreciation in the foreign currency will affect the feasibility of the project:

Assuming that a subsidiary is wholly owned, the subsidiary's perspective is appropriate in attempting to determine whether a project will enhance the firm's value.

The objective of sensitivity analysis in capital budgeting is to determine how sensitive the NPV is to alternative values of the input variables

Holding other factors constant, an international project's NPV is ____ related to consumer demand and ____ related to the project's salvage value.​

The required rate of return used to discount the relevant cash flows from a foreign project may differ from the MNC's cost of capital because of that particular project's risk.

Which of the following is not a factor that should be considered in multinational capital budgeting?

Like income tax treaties, ____ help to avoid double taxation and stimulate direct foreign investment.​

Sometimes, a multinational project may appear feasible from the subsidiary's perspective but not from the parent's perspective and vice versa.

A foreign project in Hungary and another in Japan had the same perceived value from the U.S. parent's perspective. Then, the exchange rate expectations were revised, upward for the value of the Hungarian forint and downward for the Japanese yen. The break-even salvage value for the project in Japan would now be ____ from the parent's perspective.

When assessing a German project administered by a German subsidiary of a U.S.-based MNC solely from the German subsidiary's perspective, which variable will most likely influence the capital budgeting analysis?

Fixed costs are expenses that are not affected by consumer demand, so they can be estimated without an estimate of that demand when doing multinational capital budgeting.

The ____ is (are) likely the major source of funds to support a particular project.

An MNC is considering establishing a two-year project in New Zealand with a $30 million initial investment. The firm's cost of capital is 12 percent. The required rate of return on this project is 18 percent. The project is expected to generate cash flows of NZ$12 million in Year 1 and NZ$30 million in Year 2, excluding the salvage value. Assume no taxes and a stable exchange rate of $.60 per NZ$ over the next two years. All cash flows are remitted to the parent. What is the break-even salvage value?

Everything else being equal, the ____ the depreciation expense is in a given year, the ____ a foreign project's NPV will be.

____ is not a method of incorporating an adjustment for risk into the capital budgeting analysis.​

A U.S.-based MNC has just established a subsidiary in Algeria. Shortly after the plant was built, the MNC determines that its exchange rate forecasts, which had previously indicated a slight appreciation in the Algerian dinar, were probably false. Instead of a slight appreciation, the MNC now expects that the dinar will depreciate substantially due to political turmoil in Algeria. This new development would likely cause the MNC to: