Exam 14: Multinational Capital Budgeting

Because before-tax cash flows are necessary for an adequate capital budgeting analysis,international tax effects need not be determined on a proposed foreign project.

The __________ is likely the major source of funds to support a particular project.

If a foreign project is financed with a subsidiary's retained earnings,the subsidiary's investment could be viewed as an opportunity cost,since the funds could be remitted to the parent rather than invested in the foreign project.

As the financing of a foreign project by the parent _______ relative to the financing provided by the subsidiary,the parent's exchange rate exposure _________.

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 ________.

An MNC is considering establishing a twoyear project in New Zealand with a $30 million initial investment.  The firm's cost of capital is 12%.  The required rate of return on this project is 18%.  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

Other things being equal,a blocked funds restriction is more likely to have a significant adverse effect on a project if the currency of that country is expected to _______ over time,and if the interest rate in that country is relatively ______.

An international project's NPV is _________ related to consumer demand and _________ related to the project's salvage value.

Baps is also uncertain regarding the cost of capital.Recently,Norway has been involved in some political turmoil.What is the net present value (NPV)of this project if a 16% cost of capital is used instead of 13%

The impact of blocked funds on the net present value of a foreign project will be greater if interest rates are _______ in the host country and there are _______ investment opportunities in the host country.

Other things being equal,firms from a particular home country will engage in more international acquisitions if they expect foreign currencies to _______ against their home currency,and if their cost of capital is relatively _______.

Assume the parent of a U.S.based MNC plans to completely finance the establishment of its British subsidiary with existing funds from retained earnings in U.S.operations.  According to the text,the discount rate used in the capital budgeting analysis on this project should be most affected by:

If the parent's government imposes a _______ tax rate on funds remitted from a foreign subsidiary,a project is less likely to be feasible from the _________ point of view.

In multinational capital budgeting,depreciation is treated as a cash outflow.

What is the net present value of the Norwegian project

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

A firm considers an exporting project and will invoice the exports in dollars.The expected cash flows in dollars would be more difficult if the currency of the foreign country is ________.

In general,increased investment by the parent in the foreign subsidiary causes more exchange rate exposure to the parent over time because the cash flows remitted to the parent will be larger.

If an MNC sells a product in a foreign country and imports partially manufactured components needed for production to that country from the U.S.,then the local economy's inflation will have:

If a multinational project is assessed from the subsidiary's perspective,withholding taxes are ignored for project assessment.