Question 1

In considering production in a foreign country,a firm must consider risk factors such as:

Accepted Answer

A) inflation in the price of inputs and losses arising from poor quality production. 
B) domestic labor unrest and changes in home-country tax laws. 
C) changes in import restrictions and the added costs of bribes that must be paid in the foreign country. 
D) WTO rulings and requirements of other international trade agreements. 
A) inflation in the price of inputs and losses arising from poor quality production. 
B) domestic labor unrest and changes in home-country tax laws. 
C) changes in import restrictions and the added costs of bribes that must be paid in the foreign country. 
D) WTO rulings and requirements of other international trade agreements. A

Question 2

Discounted cash flow analysis relies primarily on _________________ in valuing proposed projects.

Accepted Answer

A) opportunity costs 
B) weighted average cost of capital 
C) net present value 
D) discounted wealth effect 
A) opportunity costs 
B) weighted average cost of capital 
C) net present value 
D) discounted wealth effect C

Question 3

What benefit can the CFO of a firm contribute to the process of considering and selecting new projects for the firm to pursue?

Accepted Answer

A) The CFO is the second most powerful position in a firm,and the backing of the CFO can ensure the success of a project. 
B) The CFO has a view of the firm as a whole and can understand how a proposed project fits into the firm's overall strategy and how a proposed project can add value to the firm. 
C) The CFO makes the final decision on the expenditure of funds by the firm,so the CFO has to approve of a new project if it is going to go forward. 
D) The CFO is ultimately responsible for the success or failure of projects,so the CFO has to approve a project before it can be undertaken. 
A) The CFO is the second most powerful position in a firm,and the backing of the CFO can ensure the success of a project. 
B) The CFO has a view of the firm as a whole and can understand how a proposed project fits into the firm's overall strategy and how a proposed project can add value to the firm. 
C) The CFO makes the final decision on the expenditure of funds by the firm,so the CFO has to approve of a new project if it is going to go forward. 
D) The CFO is ultimately responsible for the success or failure of projects,so the CFO has to approve a project before it can be undertaken. B

Question 4

What is the difference between a foreign subsidiary of an MNC and a foreign joint venture?

Accepted Answer

A) A foreign subsidiary is a separate organization in a foreign country in which the MNC has a partial interest,and a foreign joint venture is an organization in a foreign country in which the MNC is a partner. 
B) A foreign subsidiary is a separate organization in a foreign country that is wholly owned by the MNC,while a foreign joint venture is an organization in a foreign country in which the MNC owns less than 100 percent. 
C) A foreign subsidiary of an MNC and a foreign joint venture are essentially the same kinds of organization and the MNC owns each kind of organization completely. 
D) A foreign subsidiary is an office of the MNC but is not a separate organization,and a foreign joint venture is a separate foreign organization owned by the MNC. 
A) A foreign subsidiary is a separate organization in a foreign country in which the MNC has a partial interest,and a foreign joint venture is an organization in a foreign country in which the MNC is a partner. 
B) A foreign subsidiary is a separate organization in a foreign country that is wholly owned by the MNC,while a foreign joint venture is an organization in a foreign country in which the MNC owns less than 100 percent. 
C) A foreign subsidiary of an MNC and a foreign joint venture are essentially the same kinds of organization and the MNC owns each kind of organization completely. 
D) A foreign subsidiary is an office of the MNC but is not a separate organization,and a foreign joint venture is a separate foreign organization owned by the MNC.

Question 5

How can firms incorporate country risk into their NPV calculations?

Accepted Answer

A) Country risk can be addressed by adjustments to discount rates or adjustments to cash flow assumptions. 
B) Country risk is not considered in NPV calculations. 
C) The discount rate used in NPV calculations automatically incorporates country risk. 
D) Country risk can be incorporated by increasing the operating cost of the project. 
A) Country risk can be addressed by adjustments to discount rates or adjustments to cash flow assumptions. 
B) Country risk is not considered in NPV calculations. 
C) The discount rate used in NPV calculations automatically incorporates country risk. 
D) Country risk can be incorporated by increasing the operating cost of the project.

Question 6

____________________________ is a figure that represents a firm's overall cost of financing or its opportunity cost of capital.

Accepted Answer

A) Discounted cash flow 
B) Net present value 
C) Wealth effect 
D) Weighted average cost of capital 
A) Discounted cash flow 
B) Net present value 
C) Wealth effect 
D) Weighted average cost of capital

Question 7

________________________________ identifies the minimum inputs into a project that are necessary to produce positive NPV.

Accepted Answer

A) Sensitivity analysis 
B) NPV analysis 
C) Profit analysis 
D) Break-even analysis 
A) Sensitivity analysis 
B) NPV analysis 
C) Profit analysis 
D) Break-even analysis

Question 8

The "interest rate" that a firm uses to determine the present value of cash flow is either:

Accepted Answer

A) the discount rate or the opportunity cost of capital. 
B) the opportunity cost of capital or the average cost of capital. 
C) the discount rate or the weighted average cost of capital. 
D) the prime rate or the opportunity cost of capital. 
A) the discount rate or the opportunity cost of capital. 
B) the opportunity cost of capital or the average cost of capital. 
C) the discount rate or the weighted average cost of capital. 
D) the prime rate or the opportunity cost of capital.

Question 9

In calculating cash flow,the price of the product to be sold depends on:

Accepted Answer

A) world economic trends and country-specific trends. 
B) prices of competing products and the inflation rate. 
C) macroeconomic factors and industry-level factors. 
D) country-specific economic factors and production capacity of the firm. 
A) world economic trends and country-specific trends. 
B) prices of competing products and the inflation rate. 
C) macroeconomic factors and industry-level factors. 
D) country-specific economic factors and production capacity of the firm.

Question 10

Firms often screen potential projects before undertaking a full review by using considerations such as:

Accepted Answer

A) feasibility and how much the project will cost. 
B) how much the project will cost and whether the firm will have to acquire additional resources for the project. 
C) feasibility and how the project fits with the firm's strategy. 
D) whether the project uses the firm's core competencies and how the project would affect the upper management of the firm. 
A) feasibility and how much the project will cost. 
B) how much the project will cost and whether the firm will have to acquire additional resources for the project. 
C) feasibility and how the project fits with the firm's strategy. 
D) whether the project uses the firm's core competencies and how the project would affect the upper management of the firm.

Question 11

In conducting cash flow analysis,key inputs are market demand and prices because:

Accepted Answer

A) market demand and prices are fixed and cannot be changed. 
B) revenues and cost estimates are based on these forecasts. 
C) market demand and prices are easily determined. 
D) this information indicates what markets firms should target. 
A) market demand and prices are fixed and cannot be changed. 
B) revenues and cost estimates are based on these forecasts. 
C) market demand and prices are easily determined. 
D) this information indicates what markets firms should target.

Question 12

Sensitivity analysis considers how NPV responds to:

Accepted Answer

A) increased country risk. 
B) changes in input values. 
C) changes in output values. 
D) increased competition. 
A) increased country risk. 
B) changes in input values. 
C) changes in output values. 
D) increased competition.

Question 13

The components of country risk include:

Accepted Answer

A) currency risk,interest rate risk,and political risk. 
B) political risk,regulatory risk,and economic risk. 
C) nationalization risk,insurgency risk,and policy risk. 
D) economic risk,conversion risk,and transaction risk. 
A) currency risk,interest rate risk,and political risk. 
B) political risk,regulatory risk,and economic risk. 
C) nationalization risk,insurgency risk,and policy risk. 
D) economic risk,conversion risk,and transaction risk.

Question 14

Projects that involve selling in foreign countries are:

Accepted Answer

A) more difficult to analyze than projects that involve foreign production because more factors have to be considered and there is more opportunity for error in the analysis. 
B) easier to analyze than projects that involve foreign production because all that has to be estimated for projects involving sale is sales revenue. 
C) analyzed in the same way that projects involving foreign production are analyzed using the same factors in the analysis of both activities. 
D) analyzed differently from projects that involve foreign production,but the same factors are considered in the analysis of both activities. 
A) more difficult to analyze than projects that involve foreign production because more factors have to be considered and there is more opportunity for error in the analysis. 
B) easier to analyze than projects that involve foreign production because all that has to be estimated for projects involving sale is sales revenue. 
C) analyzed in the same way that projects involving foreign production are analyzed using the same factors in the analysis of both activities. 
D) analyzed differently from projects that involve foreign production,but the same factors are considered in the analysis of both activities.

Question 15

Which involves more risk,outsourcing or foreign production?

Accepted Answer

A) Foreign production involves more risk. 
B) Outsourcing involves more risk. 
C) Outsourcing and foreign production are equally risky activities. 
D) Outsourcing and foreign production involve different risks,so one is not more risky than the other. 
A) Foreign production involves more risk. 
B) Outsourcing involves more risk. 
C) Outsourcing and foreign production are equally risky activities. 
D) Outsourcing and foreign production involve different risks,so one is not more risky than the other.

Question 16

In making an outsourcing decision,important considerations for the firm include:

Accepted Answer

A) the relationship of the supplier to the government of the country where the supplier is located. 
B) the supplier's reliability and flexibility to meet changes in demand. 
C) the ability of the supplier to move to another country,if necessary. 
D) whether the supplier is a corporation or some other kind of business organization. 
A) the relationship of the supplier to the government of the country where the supplier is located. 
B) the supplier's reliability and flexibility to meet changes in demand. 
C) the ability of the supplier to move to another country,if necessary. 
D) whether the supplier is a corporation or some other kind of business organization.

Question 17

How is NPV calculated and what information does NPV provide to a firm?

Accepted Answer

NPV,or net present value,seeks to determ

Question 18

What effect does the NPV of a project have on the value of the firm undertaking the project?

Accepted Answer

A) The firm's value increases or decreases by the NPV of the project. 
B) The value of a firm is not affected by the NPV of the projects it undertakes. 
C) The firm's value increases but cannot decrease because of the NPV of a project. 
D) The firm's value increases by an amount equal to the NPV of a project times the firm's effective tax rate. 
A) The firm's value increases or decreases by the NPV of the project. 
B) The value of a firm is not affected by the NPV of the projects it undertakes. 
C) The firm's value increases but cannot decrease because of the NPV of a project. 
D) The firm's value increases by an amount equal to the NPV of a project times the firm's effective tax rate.

Question 19

Two common organizational forms of foreign projects are:

Accepted Answer

A) joint ventures and outsourcing. 
B) outsourcing and foreign branches of an MNC. 
C) foreign subsidiaries of an MNC and outsourcing. 
D) foreign branches of an MNC and foreign subsidiaries of an MNC. 
A) joint ventures and outsourcing. 
B) outsourcing and foreign branches of an MNC. 
C) foreign subsidiaries of an MNC and outsourcing. 
D) foreign branches of an MNC and foreign subsidiaries of an MNC.

Question 20

How is net operating income after taxes calculated?

Accepted Answer

A) (Revenue - Expenses - Depreciation)x (1 - Tax Rate) 
B) (Revenue - Expenses)x (1 - Tax Rate) 
C) (Revenue - Expenses - Depreciation)x (Tax Rate) 
D) (Revenue - Expenses)x (Tax Rate) 
A) (Revenue - Expenses - Depreciation)x (1 - Tax Rate) 
B) (Revenue - Expenses)x (1 - Tax Rate) 
C) (Revenue - Expenses - Depreciation)x (Tax Rate) 
D) (Revenue - Expenses)x (Tax Rate)

In considering production in a foreign country,a firm must consider risk factors such as:

Discounted cash flow analysis relies primarily on _________________ in valuing proposed projects.

What benefit can the CFO of a firm contribute to the process of considering and selecting new projects for the firm to pursue?

What is the difference between a foreign subsidiary of an MNC and a foreign joint venture?

How can firms incorporate country risk into their NPV calculations?

____________________________ is a figure that represents a firm's overall cost of financing or its opportunity cost of capital.

________________________________ identifies the minimum inputs into a project that are necessary to produce positive NPV.

The "interest rate" that a firm uses to determine the present value of cash flow is either:

In calculating cash flow,the price of the product to be sold depends on:

Firms often screen potential projects before undertaking a full review by using considerations such as:

In conducting cash flow analysis,key inputs are market demand and prices because:

Sensitivity analysis considers how NPV responds to:

The components of country risk include:

Projects that involve selling in foreign countries are:

Which involves more risk,outsourcing or foreign production?

In making an outsourcing decision,important considerations for the firm include:

How is NPV calculated and what information does NPV provide to a firm?

What effect does the NPV of a project have on the value of the firm undertaking the project?

Two common organizational forms of foreign projects are:

How is net operating income after taxes calculated?

Introduction

International Financial Markets: Structure and Innovation

Currency and Eurocurrency Derivatives

Currency Systems and Valuation

Currency Parity Conditions

Currency Risk Exposure Measurement

Currency Exposure Management

Advanced Capital Budgeting

Long-Term Financing

Optimizing and Financing Working Capital

International Alliances and Acquisitions

International Trade

International Taxation and Accounting

International Portfolio Investments

Filters

Exam 8: Capital Budgeting

In considering production in a foreign country,a firm must consider risk factors such as:

Discounted cash flow analysis relies primarily on _________________ in valuing proposed projects.

What benefit can the CFO of a firm contribute to the process of considering and selecting new projects for the firm to pursue?

What is the difference between a foreign subsidiary of an MNC and a foreign joint venture?

How can firms incorporate country risk into their NPV calculations?

____________________________ is a figure that represents a firm's overall cost of financing or its opportunity cost of capital.

________________________________ identifies the minimum inputs into a project that are necessary to produce positive NPV.

The "interest rate" that a firm uses to determine the present value of cash flow is either:

In calculating cash flow,the price of the product to be sold depends on:

Firms often screen potential projects before undertaking a full review by using considerations such as:

In conducting cash flow analysis,key inputs are market demand and prices because:

Sensitivity analysis considers how NPV responds to:

The components of country risk include:

Projects that involve selling in foreign countries are:

Which involves more risk,outsourcing or foreign production?

In making an outsourcing decision,important considerations for the firm include:

How is NPV calculated and what information does NPV provide to a firm?

What effect does the NPV of a project have on the value of the firm undertaking the project?

Two common organizational forms of foreign projects are:

How is net operating income after taxes calculated?

Introduction

International Financial Markets: Structure and Innovation

Currency and Eurocurrency Derivatives

Currency Systems and Valuation

Currency Parity Conditions

Currency Risk Exposure Measurement

Currency Exposure Management

Advanced Capital Budgeting

Long-Term Financing

Optimizing and Financing Working Capital

International Alliances and Acquisitions

International Trade

International Taxation and Accounting

International Portfolio Investments

Filters