Question 1

Which of the following is NOT a factor critical to the success of project financing?

Accepted Answer

A) separability of the project from its investors 
B) long-lived and capital intensive singular projects 
C) cash flow predictability from third part commitments 
D) All of the above are critical factors for project financing. 
A) separability of the project from its investors 
B) long-lived and capital intensive singular projects 
C) cash flow predictability from third part commitments 
D) All of the above are critical factors for project financing.

Question 2

A foreign firm that is 20% to 49% owned by a parent is called a/an:

Accepted Answer

A) subsidiary. 
B) affiliate. 
C) partner. 
D) rival. 
A) subsidiary. 
B) affiliate. 
C) partner. 
D) rival.

Question 3

Refer to Instruction 18.1. What is the NPV of the European expansion if Velo Rapid Revolutions first computes the NPV in euros and then converts that figure to dollars using the current spot rate?

Accepted Answer

A) $1,520,000 
B) $1,684,210 
C) -$75,310 
D) -$71,544 
A) $1,520,000 
B) $1,684,210 
C) -$75,310 
D) -$71,544

Question 4

Which of the following is NOT a basic step in the capital budgeting process?

Accepted Answer

A) Identify the initial capital invested. 
B) Estimate the cash flows to be derived from the project over time. 
C) Identify the appropriate interest rate at which to discount future cash flows. 
D) All of the above are steps in the capital budgeting process. 
A) Identify the initial capital invested. 
B) Estimate the cash flows to be derived from the project over time. 
C) Identify the appropriate interest rate at which to discount future cash flows. 
D) All of the above are steps in the capital budgeting process.

Question 5

For purposes of international capital budgeting, it is NOT important to distinguish between parent and total project cash flows.

Accepted Answer

A) True 
 B)False

Question 6

________ is the risk that a foreign government will place restrictions such as limiting the amount of funds that can be remitted to the parent firm, or even expropriation of cash flows earned in that country.

Accepted Answer

A) Exchange risk 
B) Foreign risk 
C) Political risk 
D) Unnecessary risk 
A) Exchange risk 
B) Foreign risk 
C) Political risk 
D) Unnecessary risk

Question 7

When a multinational firm invests abroad, it is common to develop two capital budgets: one from the project viewpoint, and one from the parent viewpoint.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is NOT a reason why capital budgeting for a foreign project is more complex than for a domestic project?

Accepted Answer

A) Parent cash flows must be distinguished from project cash flows. 
B) Parent firms must specifically recognize remittance of funds due to differing rules and regulations concerning remittance of cash flows, taxes, and local norms. 
C) Differing rates of inflation exist between the foreign and domestic economies. 
D) All of the above add complexity to the international capital budgeting process. 
A) Parent cash flows must be distinguished from project cash flows. 
B) Parent firms must specifically recognize remittance of funds due to differing rules and regulations concerning remittance of cash flows, taxes, and local norms. 
C) Differing rates of inflation exist between the foreign and domestic economies. 
D) All of the above add complexity to the international capital budgeting process.

Question 9

Of the following capital budgeting decision criteria, which does NOT use discounted cash flows?

Accepted Answer

A) net present value 
B) internal rate of return 
C) accounting rate of return 
D) All of these techniques typically use discounted cash flows. 
A) net present value 
B) internal rate of return 
C) accounting rate of return 
D) All of these techniques typically use discounted cash flows.

Question 10

Given a current spot rate of 8.10 Norwegian krone per U.S. dollar, expected inflation rates of 6% in Norway and 3% per annum in the U.S., use the formula for relative purchasing power parity to estimate the one-year spot rate of krone per dollar.

Accepted Answer

A) 7.87 krone per dollar 
B) 8.10 krone per dollar 
C) 8.34 krone per dollar 
D) There is not enough information to answer this question. 
A) 7.87 krone per dollar 
B) 8.10 krone per dollar 
C) 8.34 krone per dollar 
D) There is not enough information to answer this question.

Question 11

When estimating a capital budget, it is common to separate cash flows into: 1)the initial investment, 2)incremental cash flows over the life of the project, and 3)a terminal value.

Accepted Answer

A) True 
 B)False

Question 12

Multinational firms should invest only if they can earn a risk-adjusted return greater than locally based competitors can earn on the same project.

Accepted Answer

A) True 
 B)False

Question 13

It is important that firms adopt a common standard for the capital budgeting process for choosing among foreign and domestic projects.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is NOT a reason given for international mergers and acquisitions?

Accepted Answer

A) gaining access to strategic proprietary assets 
B) gaining market power and dominance 
C) diversifying and spreading their risks wider 
D) All of the above are commonly cited reasons for international mergers and acquisitions. 
A) gaining access to strategic proprietary assets 
B) gaining market power and dominance 
C) diversifying and spreading their risks wider 
D) All of the above are commonly cited reasons for international mergers and acquisitions.

Question 15

A criticism of adjusting the discount rate to account for political risk is that adjusting the discount rate for political risk penalizes early cash flows too heavily while not penalizing distant cash flows enough.

Accepted Answer

A) True 
 B)False

Question 16

When evaluating capital budgeting projects, which of the following would NOT necessarily be an indicator of an acceptable project?

Accepted Answer

A) an NPV > $0 
B) an IRR > the project's required rate of return 
C) an IRR > $0 
D) All of the above are correct indicators. 
A) an NPV > $0 
B) an IRR > the project's required rate of return 
C) an IRR > $0 
D) All of the above are correct indicators.

Question 17

Real option analysis allows managers to analyze all of the following EXCEPT:

Accepted Answer

A) the option to defer. 
B) the option to abandon. 
C) the option to alter capacity. 
D) All of the above may be analyzed using real option analysis. 
A) the option to defer. 
B) the option to abandon. 
C) the option to alter capacity. 
D) All of the above may be analyzed using real option analysis.

Question 18

Refer to Instruction 18.1. What is the IRR of the Velo Rapid Revolutions expansion?

Accepted Answer

A) 14.4% 
B) 10.3% 
C) 12.0% 
D) 8.6% 
A) 14.4% 
B) 10.3% 
C) 12.0% 
D) 8.6%

Question 19

Generally speaking, a firm wants to receive cash flows from a currency that is ________ relative to their own, and pay out in currencies that are ________ relative to their home currency.

Accepted Answer

A) appreciating; depreciating 
B) depreciating; depreciating 
C) appreciating; appreciating 
D) depreciating; appreciating 
A) appreciating; depreciating 
B) depreciating; depreciating 
C) appreciating; appreciating 
D) depreciating; appreciating

Question 20

When dealing with international capital budgeting projects, the value of the project is NOT sensitive to the firm's cost of capital.

Accepted Answer

A) True 
 B)False

Which of the following is NOT a factor critical to the success of project financing?

A foreign firm that is 20% to 49% owned by a parent is called a/an:

Refer to Instruction 18.1. What is the NPV of the European expansion if Velo Rapid Revolutions first computes the NPV in euros and then converts that figure to dollars using the current spot rate?

Which of the following is NOT a basic step in the capital budgeting process?

For purposes of international capital budgeting, it is NOT important to distinguish between parent and total project cash flows.

________ is the risk that a foreign government will place restrictions such as limiting the amount of funds that can be remitted to the parent firm, or even expropriation of cash flows earned in that country.

When a multinational firm invests abroad, it is common to develop two capital budgets: one from the project viewpoint, and one from the parent viewpoint.

Which of the following is NOT a reason why capital budgeting for a foreign project is more complex than for a domestic project?

Of the following capital budgeting decision criteria, which does NOT use discounted cash flows?

Given a current spot rate of 8.10 Norwegian krone per U.S. dollar, expected inflation rates of 6% in Norway and 3% per annum in the U.S., use the formula for relative purchasing power parity to estimate the one-year spot rate of krone per dollar.

When estimating a capital budget, it is common to separate cash flows into: 1)the initial investment, 2)incremental cash flows over the life of the project, and 3)a terminal value.

Multinational firms should invest only if they can earn a risk-adjusted return greater than locally based competitors can earn on the same project.

It is important that firms adopt a common standard for the capital budgeting process for choosing among foreign and domestic projects.

Which of the following is NOT a reason given for international mergers and acquisitions?

A criticism of adjusting the discount rate to account for political risk is that adjusting the discount rate for political risk penalizes early cash flows too heavily while not penalizing distant cash flows enough.

When evaluating capital budgeting projects, which of the following would NOT necessarily be an indicator of an acceptable project?

Real option analysis allows managers to analyze all of the following EXCEPT:

Refer to Instruction 18.1. What is the IRR of the Velo Rapid Revolutions expansion?

Generally speaking, a firm wants to receive cash flows from a currency that is relative to their own, and pay out in currencies that are relative to their home currency.

When dealing with international capital budgeting projects, the value of the project is NOT sensitive to the firm's cost of capital.

Current Multinational Challenges and the Global Economy

Corporate Ownership, Goals, and Governance

The International Monetary System

The Balance of Payments

The Continuing Global Financial Crisis

The Foreign Exchange Theory and Markets

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Portfolio Theory and Diversification

Foreign Direct Investment and Political Risk

Working Capital Management

International Trade Finance

Filters

Exam 18: Multinational Capital Budgeting and Cross-Border Acquisitions

Which of the following is NOT a factor critical to the success of project financing?

A foreign firm that is 20% to 49% owned by a parent is called a/an:

Refer to Instruction 18.1. What is the NPV of the European expansion if Velo Rapid Revolutions first computes the NPV in euros and then converts that figure to dollars using the current spot rate?

Which of the following is NOT a basic step in the capital budgeting process?

For purposes of international capital budgeting, it is NOT important to distinguish between parent and total project cash flows.

________ is the risk that a foreign government will place restrictions such as limiting the amount of funds that can be remitted to the parent firm, or even expropriation of cash flows earned in that country.

When a multinational firm invests abroad, it is common to develop two capital budgets: one from the project viewpoint, and one from the parent viewpoint.

Which of the following is NOT a reason why capital budgeting for a foreign project is more complex than for a domestic project?

Of the following capital budgeting decision criteria, which does NOT use discounted cash flows?

Given a current spot rate of 8.10 Norwegian krone per U.S. dollar, expected inflation rates of 6% in Norway and 3% per annum in the U.S., use the formula for relative purchasing power parity to estimate the one-year spot rate of krone per dollar.

When estimating a capital budget, it is common to separate cash flows into: 1)the initial investment, 2)incremental cash flows over the life of the project, and 3)a terminal value.

Multinational firms should invest only if they can earn a risk-adjusted return greater than locally based competitors can earn on the same project.

It is important that firms adopt a common standard for the capital budgeting process for choosing among foreign and domestic projects.

Which of the following is NOT a reason given for international mergers and acquisitions?

A criticism of adjusting the discount rate to account for political risk is that adjusting the discount rate for political risk penalizes early cash flows too heavily while not penalizing distant cash flows enough.

When evaluating capital budgeting projects, which of the following would NOT necessarily be an indicator of an acceptable project?

Real option analysis allows managers to analyze all of the following EXCEPT:

Refer to Instruction 18.1. What is the IRR of the Velo Rapid Revolutions expansion?

Generally speaking, a firm wants to receive cash flows from a currency that is ________ relative to their own, and pay out in currencies that are ________ relative to their home currency.

When dealing with international capital budgeting projects, the value of the project is NOT sensitive to the firm's cost of capital.

Current Multinational Challenges and the Global Economy

Corporate Ownership, Goals, and Governance

The International Monetary System

The Balance of Payments

The Continuing Global Financial Crisis

The Foreign Exchange Theory and Markets

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Portfolio Theory and Diversification

Foreign Direct Investment and Political Risk

Working Capital Management

International Trade Finance

Filters

Generally speaking, a firm wants to receive cash flows from a currency that is relative to their own, and pay out in currencies that are relative to their home currency.