Exam 14: Multinational Capital Budgeting

Assume a U.S.based MNC has a Chilean subsidiary that annually remits 30 million Chilean pesos to the U.S.  If the peso _______,the dollar amount of remitted funds _______.

In conducting a multinational capital budgeting analysis,the subsidiary's perspective should always be used.

When a foreign subsidiary is not wholly owned by the parent and a foreign project is partially financed with retained earnings of the parent and of the subsidiary,then:

When conducting a capital budgeting analysis and attempting to account for effects of exchange rate movements for a foreign project,inflation __________ included explicitly in the cash flow analysis,and debt payments by the subsidiary _________ included explicitly in the cash flow analysis.

Blocked funds may penalize a project if the return on the forced reinvestment in the foreign country is less than the required rate of return on the project.

The feasibility of a multinational project from the parent's perspective is dependent not on the subsidiary cash flows but on the cash flows that it ultimately receives.

Petrus Company has a unique opportunity to invest in a two-year project in Australia.The project is expected to generate 1,000,000 Australian dollars (A$)in the first year and 2,000,000 Australian dollars in the second.Petrus would have to invest $1,500,000 in the project.Petrus has determined that the cost of capital for similar projects is 14%.What is the net present value of this project if the spot rate of the Australian dollar for the two years is forecasted to be $.55 and $.60,respectively

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

No matter what the probability distribution of future exchange rates is,as long as one out of several scenarios results in a negative net present value (NPV),a project should not be accepted.

One 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.

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.

If a host government restricts the remittances from a foreign subsidiary,a possible solution is to let the subsidiary obtain partial financing for the project.

The required rate of return of a project is _____________ the MNC's cost of capital.

An international project's NPV is _________ related to the size of the initial investment and _________ related to the project's required rate of return.

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 __________ its estimate of the previously computed net present value.

When evaluating international project cash flows,which of the following factors is relevant

If the parent charges the subsidiary administrative fees,the earnings from the project will appear low to the parent and high to the subsidiary.

In capital budgeting analysis,the use of a cumulative NPV is useful for:

The discrepancy between the feasibility of a project in a host country from the perspective of the U.S.parent versus the subsidiary administering the project is likely to be greater for projects in countries where:

Which of the following is not a characteristic of a country to be considered within an MNC's international tax assessment