Question 1

What is meant by the cannibalization of an export market?

Accepted Answer

When you choose to change how you service a market to which you are exporting,either because you are building a new plant in the foreign country or you are expanding production in an existing plant,you would like to know the incremental profitability of this new project.Cannibalization of exports refers to the lost exports in this market that you are now serving differently if no market can be found for the goods that were formerly being exported to that country.These lost exports could be from the parent or from another one of its foreign subsidiaries in a different country.The lost profits on these exports must be considered to be a cost of accepting the new project.If the exports that were formerly being sent to the country can be sold elsewhere in the world,there is no cannibalization.

Question 2

Which of the following does NOT add cash flows to the parent's free cash flows?

Accepted Answer

A)  royalties 
B)  cannibalization of exports 
C)  overhead management fees 
D)  licensing agreements 
A)  royalties 
B)  cannibalization of exports 
C)  overhead management fees 
D)  licensing agreements B

Question 3

Suppose you are conducting a financial analysis of a potential acquisition target,and you have been asked to identify the firm's engine of growth.Upon which of the following would you focus your analysis?

Accepted Answer

A)  accounts receivable turnover 
B)  capital expenditures 
C)  debt to equity ratio 
D)  the firm's overall capital structure 
A)  accounts receivable turnover 
B)  capital expenditures 
C)  debt to equity ratio 
D)  the firm's overall capital structure B

Question 4

The net present value of financial side effects arise from

Accepted Answer

A)  the costs of issuing securities. 
B)  actions of the Federal Reserve 
C)  incorporating the risk premium of the shareholders into the discount rate. 
D)  measuring cash flows in the same currency. 
A)  the costs of issuing securities. 
B)  actions of the Federal Reserve 
C)  incorporating the risk premium of the shareholders into the discount rate. 
D)  measuring cash flows in the same currency.

Question 5

With respect to currency measurement,what is the rule when discounting cash flows?

Accepted Answer

A)  The revenues and expenses must be measured as they occur rather than on an incremental basis. 
B)  There is no need to incorporate the risk premium of that the firm's stockholders would demand in the discount rate. 
C)  Revenues and expenses should be measured on a pre-tax cash flow basis. 
D)  All cash flows should be measured in the same currency. 
A)  The revenues and expenses must be measured as they occur rather than on an incremental basis. 
B)  There is no need to incorporate the risk premium of that the firm's stockholders would demand in the discount rate. 
C)  Revenues and expenses should be measured on a pre-tax cash flow basis. 
D)  All cash flows should be measured in the same currency.

Question 6

When a firm undertakes a project and obtains an option to do another project in the future,it is often referred to as a ________.

Accepted Answer

A)  put 
B)  call 
C)  hedge 
D)  growth option 
A)  put 
B)  call 
C)  hedge 
D)  growth option

Question 7

Which one of the following would be an example of a growth option to add when developing the adjusted net present value of a project?

Accepted Answer

A)  the expansion of the nation's money supply 
B)  the cost of issuing securities 
C)  the cost of financial distress 
D)  the award of another project by a satisfied customer from the current project. 
A)  the expansion of the nation's money supply 
B)  the cost of issuing securities 
C)  the cost of financial distress 
D)  the award of another project by a satisfied customer from the current project.

Question 8

________ refers to the possibility of export revenue when a foreign market is served by direct foreign investment and the former exports to that market are 	unable to be sold elsewhere.

Accepted Answer

A)  Cannibalization of exports 
B)  Cannibalization of imports 
C)  Capital budgeting 
D)  Adjusted net present value 
A)  Cannibalization of exports 
B)  Cannibalization of imports 
C)  Capital budgeting 
D)  Adjusted net present value

Question 9

When a firm's management chooses not to pay out dividends from its free cash flow,it develops ________ that may lead to high agency costs.

Accepted Answer

A)  negative net present value 
B)  additional depreciation 
C)  no more growth options 
D)  financial slack 
A)  negative net present value 
B)  additional depreciation 
C)  no more growth options 
D)  financial slack

Question 10

What is the term used to refer to the ability of the firm to deduct interest payments to reduce its tax liability?

Accepted Answer

A)  tax credits 
B)  interest tax shield 
C)  interest loophole 
D)  tax forgiveness 
A)  tax credits 
B)  interest tax shield 
C)  interest loophole 
D)  tax forgiveness

Question 11

Which one of the following is NOT a financial side effect to account for when developing the adjusted net present value of a project?

Accepted Answer

A)  subsidized financing from governments 
B)  the Federal Reserve Chair announces an interest rate increase 
C)  the cost of issuing securities 
D)  the costs of financial distress 
A)  subsidized financing from governments 
B)  the Federal Reserve Chair announces an interest rate increase 
C)  the cost of issuing securities 
D)  the costs of financial distress

Question 12

What is an interest subsidy? How do you calculate the value of an interest subsidy?

Accepted Answer

Interest subsidies arise when government

Question 13

How does the role of underwriting affect the issuing of securities?

Accepted Answer

The investment bankers who handle the is

Question 14

One of the major differences between the WACC analysis and ANPV is the fact that ANPV

Accepted Answer

A)  takes into consideration the interest expense of raising debt capital. 
B)  allows after-tax interest payments into the cash flows. 
C)  uses the rate of return on the unlevered assets to get the all-equity value. 
D)  uses a discount rate that takes into account the after-tax returns on capital. 
A)  takes into consideration the interest expense of raising debt capital. 
B)  allows after-tax interest payments into the cash flows. 
C)  uses the rate of return on the unlevered assets to get the all-equity value. 
D)  uses a discount rate that takes into account the after-tax returns on capital.

Question 15

Which one of the following would most likely be caused by the financial side effects of a project?

Accepted Answer

A)  the costs of financial distress 
B)  subsequent new projects 
C)  cannibalization of exports 
D)  an end to licensing revenues to the parent 
A)  the costs of financial distress 
B)  subsequent new projects 
C)  cannibalization of exports 
D)  an end to licensing revenues to the parent

Question 16

A firm is in ________ if it is having difficulty meeting its commitments to its creditors such as the bondholders.

Accepted Answer

A)  bankruptcy 
B)  default 
C)  financial distress 
D)  receivership 
A)  bankruptcy 
B)  default 
C)  financial distress 
D)  receivership

Question 17

Suppose the parent MNC had a choice of licensing,royalties and overhead allocations to repatriate funds from its subsidiaries,which ones represent pure profit to the parent?

Accepted Answer

A)  licensing and overhead allocations 
B)  licensing and royalties 
C)  royalties and overhead allocations 
D)  a combination of all three 
A)  licensing and overhead allocations 
B)  licensing and royalties 
C)  royalties and overhead allocations 
D)  a combination of all three

Question 18

The basic principal of capital budgeting is that ________ with a positive adjusted net present value should be accepted by the firm.

Accepted Answer

A)  projects 
B)  investments 
C)  all cash flows 
D)  accounts receivable 
A)  projects 
B)  investments 
C)  all cash flows 
D)  accounts receivable

Question 19

One fee investment bankers earn is based on the ________ that is the difference between what the banker's corporate client receives from the issue of securities and what the public pays.

Accepted Answer

A)  underwriting discount 
B)  bid-ask spread 
C)  free cash flows 
D)  net present value of the client firm 
A)  underwriting discount 
B)  bid-ask spread 
C)  free cash flows 
D)  net present value of the client firm

Question 20

Based on their computation what is the difference between EBIT and NOPLAT?

Accepted Answer

The acronym EBIT is earnings before inte

Exam 15: International Capital Budgeting

What is meant by the cannibalization of an export market?

Which of the following does NOT add cash flows to the parent's free cash flows?

Suppose you are conducting a financial analysis of a potential acquisition target,and you have been asked to identify the firm's engine of growth.Upon which of the following would you focus your analysis?

The net present value of financial side effects arise from

With respect to currency measurement,what is the rule when discounting cash flows?

When a firm undertakes a project and obtains an option to do another project in the future,it is often referred to as a ________.

Which one of the following would be an example of a growth option to add when developing the adjusted net present value of a project?

________ refers to the possibility of export revenue when a foreign market is served by direct foreign investment and the former exports to that market are unable to be sold elsewhere.

When a firm's management chooses not to pay out dividends from its free cash flow,it develops ________ that may lead to high agency costs.

What is the term used to refer to the ability of the firm to deduct interest payments to reduce its tax liability?

Which one of the following is NOT a financial side effect to account for when developing the adjusted net present value of a project?

What is an interest subsidy? How do you calculate the value of an interest subsidy?

How does the role of underwriting affect the issuing of securities?

One of the major differences between the WACC analysis and ANPV is the fact that ANPV

Which one of the following would most likely be caused by the financial side effects of a project?

A firm is in ________ if it is having difficulty meeting its commitments to its creditors such as the bondholders.

Suppose the parent MNC had a choice of licensing,royalties and overhead allocations to repatriate funds from its subsidiaries,which ones represent pure profit to the parent?

The basic principal of capital budgeting is that ________ with a positive adjusted net present value should be accepted by the firm.

One fee investment bankers earn is based on the ________ that is the difference between what the banker's corporate client receives from the issue of securities and what the public pays.

Based on their computation what is the difference between EBIT and NOPLAT?

Globalization and the Multinational Corporation

The Foreign Exchange Market

Forward Markets and Transaction Exchange Risk

The Balance of Payments

Exchange Rate Systems

Interest Rate Parity

Speculation and Risk in the Foreign Exchange Market

Purchasing Power Parity and Real Exchange Rates

Measuring and Managing Real Exchange Risk

Exchange Rate Determination and Forecasting

International Debt Financing

International Equity Financing

International Capital Market Equilibrium

Country and Political Risk

Additional Topics in International Capital Budgeting

Risk Management and the Foreign Currency Hedging Decision

Financing International Trade

Managing Net Working Capital

Foreign Currency Futures and Options

Interest Rates and Foreign Currency Swaps

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