Question 1

Which of the following might cause the board of directors of an MNC to not be effective at governance?

Accepted Answer

A) The firm's CEO serves as chair of the board. 
B) The board consists mainly of outside members who are not managers of the firm. 
C) The board consists mainly of inside members who are managers of the firm. 
D) A and C 
A) The firm's CEO serves as chair of the board. 
B) The board consists mainly of outside members who are not managers of the firm. 
C) The board consists mainly of inside members who are managers of the firm. 
D) A and C

Question 2

Exhibit 15-1
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 any taxes due.
• 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 percent over the following two years.
• Cost of goods sold is expected to be 60 percent 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 percent.
• 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 will be 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 percent.
-Refer to Exhibit 15-1. 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 
A) 1.4 
B) 1,673.9 
C) 111.5 
D) 88.6 
E) none of the above

Question 3

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. 
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 4

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 
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 5

A call option on real assets represents a proposed project that contains an option of pursuing an additional venture.

Accepted Answer

A) True 
 B)False

Question 6

An MNC that plans to acquire a target would prefer to time its bid for the target when the local stock market prices in the target's country are generally high.

Accepted Answer

A) True 
 B)False

Question 7

At present, U.S. firms acquire more targets in China than in any other country.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following types of international corporate control transaction is probably the most difficult to value by an MNC?

Accepted Answer

A) an international acquisition of an existing business 
B) an international acquisition of a newly privatized business 
C) an international partial acquisition 
D) an international divestiture 
A) an international acquisition of an existing business 
B) an international acquisition of a newly privatized business 
C) an international partial acquisition 
D) an international divestiture

Question 9

Which of the following is not an external force that could reduce the present value of a foreign subsidiary's future cash flows?

Accepted Answer

A) higher taxes imposed by the host government 
B) depreciation of the local currency 
C) an increase in the parent's cost of capital 
D) weakening of the economy of the host country 
E) All of the above could reduce the present value of the subsidiary's future cash flows. 
A) higher taxes imposed by the host government 
B) depreciation of the local currency 
C) an increase in the parent's cost of capital 
D) weakening of the economy of the host country 
E) All of the above could reduce the present value of the subsidiary's future cash flows.

Question 10

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

Question 11

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

Accepted Answer

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

Question 12

When an MNC considers a partial acquisition, the valuation of the target will be conducted the same way whether the MNC acquires control of the target or only a small portion of its shares.

Accepted Answer

A) True 
 B)False

Question 13

The government of a country may prevent a foreign firm from acquiring local targets and downsizing the targets.

Accepted Answer

A) True 
 B)False

Question 14

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 15

Based on information in your text, all of the following factors should be considered in an international acquisition, except:

Accepted Answer

A) the target's willingness to be acquired. 
B) the target's previous acquisition history. 
C) the target's previous cash flows. 
D) the target's local economic conditions. 
A) the target's willingness to be acquired. 
B) the target's previous acquisition history. 
C) the target's previous cash flows. 
D) the target's local economic conditions.

Question 16

The earnings of a private European firm are €5 million, and the average P/E ratio of publicly traded European firms in the same industry is 12. This firm is considering the possibility of going public and issuing one million shares. If the private firm has similar growth potential and other characteristics similar to other publicly traded firms in the industry, its value can be estimated as ____ million euros.

Accepted Answer

A) 2.4 
B) 60.0 
C) 41.7 
D) 12 
A) 2.4 
B) 60.0 
C) 41.7 
D) 12

Question 17

Regarding the valuation of privatized businesses in less developed countries, ____ can normally be estimated with a high degree of accuracy.

Accepted Answer

A) future cash flows 
B) future exchange rate movements 
C) the proper discount rate 
D) none of the above 
A) future cash flows 
B) future exchange rate movements 
C) the proper discount rate 
D) none of the above

Question 18

Which of the following is not an advantage of international acquisitions over the establishment of a new subsidiary?

Accepted Answer

A) The firm can immediately expand its international business. 
B) An international acquisition typically generates quicker cash flows than the establishment of a new subsidiary. 
C) International acquisitions are generally cheaper than the establishment of a new subsidiary. 
D) An international acquisition typically generates larger cash flows than the establishment of a new subsidiary. 
E) All of the above are advantages of international acquisitions. 
A) The firm can immediately expand its international business. 
B) An international acquisition typically generates quicker cash flows than the establishment of a new subsidiary. 
C) International acquisitions are generally cheaper than the establishment of a new subsidiary. 
D) An international acquisition typically generates larger cash flows than the establishment of a new subsidiary. 
E) All of the above are advantages of international acquisitions.

Question 19

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

Question 20

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 
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

Which of the following might cause the board of directors of an MNC to not be effective at governance?

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

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

A call option on real assets represents a proposed project that contains an option of pursuing an additional venture.

An MNC that plans to acquire a target would prefer to time its bid for the target when the local stock market prices in the target's country are generally high.

At present, U.S. firms acquire more targets in China than in any other country.

Which of the following types of international corporate control transaction is probably the most difficult to value by an MNC?

Which of the following is not an external force that could reduce the present value of a foreign subsidiary's future cash flows?

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.

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

When an MNC considers a partial acquisition, the valuation of the target will be conducted the same way whether the MNC acquires control of the target or only a small portion of its shares.

The government of a country may prevent a foreign firm from acquiring local targets and downsizing the targets.

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.

Based on information in your text, all of the following factors should be considered in an international acquisition, except:

Regarding the valuation of privatized businesses in less developed countries, ____ can normally be estimated with a high degree of accuracy.

Which of the following is not an advantage of international acquisitions over the establishment of a new subsidiary?

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.

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.

Multinational Financial Management: An Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Exam 15: International Corporate Governance and Control

Which of the following might cause the board of directors of an MNC to not be effective at governance?

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

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

A call option on real assets represents a proposed project that contains an option of pursuing an additional venture.

An MNC that plans to acquire a target would prefer to time its bid for the target when the local stock market prices in the target's country are generally high.

At present, U.S. firms acquire more targets in China than in any other country.

Which of the following types of international corporate control transaction is probably the most difficult to value by an MNC?

Which of the following is not an external force that could reduce the present value of a foreign subsidiary's future cash flows?

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.

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

When an MNC considers a partial acquisition, the valuation of the target will be conducted the same way whether the MNC acquires control of the target or only a small portion of its shares.

The government of a country may prevent a foreign firm from acquiring local targets and downsizing the targets.

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.

Based on information in your text, all of the following factors should be considered in an international acquisition, except:

Regarding the valuation of privatized businesses in less developed countries, ____ can normally be estimated with a high degree of accuracy.

Which of the following is not an advantage of international acquisitions over the establishment of a new subsidiary?

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.​

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.

Multinational Financial Management: An Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

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.

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.

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.