Exam 15: International Corporate Governance and Control

An MNC may have to pay a higher price to acquire a target in countries that do not strictly enforce laws against insider trading.

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

Other things being equal, a foreign subsidiary in China would more likely be divested by the U.S. parent if new information caused the parent to suddenly anticipate that:

According to your text, U.S. firms pursue more international acquisitions in ____ than in other countries.

When an MNC assesses targets among countries, it would prefer a country in which the growth potential for its respective industry is high and the competition within the industry is not excessive.

Which of the following is not a reason why the valuation of a foreign target may vary among MNCs?

The ideal time to purchase a foreign company is when the spot rate of that company's currency is perceived to be very high and is expected to decrease over time.

Even if an existing business adds value to an MNC, it may be worthwhile to assess whether the business would generate more value to the MNC if it was restructured.

International governance is achieved by all of the following except:

The value of an MNC (from the parent's perspective) is independent of the MNC's desired scheduling of remitted funds from the target.

An MNC that plans to acquire a target would prefer to make a bid at a time when the local stock market prices are generally ____. Assume that economic conditions are held constant when completing this statement.

Which of the following would not enhance the value of a target from the acquirer's perspective?

The valuation of a target (from the parent's perspective) should increase when the potential acquirer's cost of capital increases.

The stock price of a target may decrease if investors anticipate that the target will be acquired, since they are aware that stock prices of targets fall abruptly aFter a bid by the acquiring firm.

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. Based on the information provided above, the net present value of the Malaysian target is $____ million.

If an MNC targets a successful foreign company with plans to continue the target's local business in a more efficient manner, the risk of the business will be relatively ____, and therefore the MNC's required return from acquiring the target will be relatively ____.

From an acquirer's perspective, the ideal conditions would be a weak foreign currency at the time of acquisition and a strengthening of the foreign currency over time as funds are remitted back to the parent.

An international acquisition is different from the establishment of a new subsidiary in that the MNC can immediately expand its international business since the target is already in place.

An MNC should periodically reassess its investments to determine whether to divest them.

An acquirer based in a low-tax country may be able to generate higher cash flows from acquiring a foreign target than an acquirer based in a high-tax country.