Exam 14: Multinational Capital Budgeting

If a parent's perspective is used in analyzing a multinational project, the relevant cash flows are the dollars ultimately received by the parent as a result of the project; the relevant initial outlay is the investment by the parent.

If a host government restricts the remittances from a foreign subsidiary, a possible solution is to let the subsidiary obtain partial financing for the project.

When managers use NPV analysis, agency costs are eliminated, and governance is not needed to monitor MNC decisions regarding projects.

Because before-tax cash flows are necessary for an adequate capital budgeting analysis, international tax effects need not be determined on a proposed foreign project.

Other things being equal, firms from a particular home country will engage in more international acquisitions if they expect foreign currencies to ____ against their home currency, and if their cost of capital is relatively ____.

If a foreign project is financed with a subsidiary's retained earnings, the subsidiary's investment could be viewed as an opportunity cost, since the funds could be remitted to the parent rather than invested in the foreign project.

An international project's NPV is ____ related to the size of the initial investment and ____ related to the project's required rate of return.

In conducting a multinational capital budgeting analysis, the subsidiary's perspective should always be used.

____ can cause the parent's after-tax cash flows to differ from the subsidiary's after-tax cash flows.

If an MNC sells a product in a foreign country and imports partially manufactured components needed for production to that country from the U.S., then the local economy's inflation will have:

The feasibility of a multinational project from the parent's perspective is dependent not on the subsidiary cash flows but on the cash flows that it ultimately receives.

According to the text, in order to develop a distribution of possible net present values from international projects, a firm should use:

The required rate of return of a project is ____ the MNC's cost of capital.

Assuming that a subsidiary is wholly owned, a subsidiary's perspective is appropriate in attempting to determine whether a project will enhance the firm's value.

____ is an input required for a multinational capital budgeting analysis, given that it is conducted from the parent's viewpoint.

When evaluating international project cash flows, which of the following factors is relevant?

The discrepancy between the feasibility of a project in a host country from the perspective of the U.S. parent versus the subsidiary administering the project is likely to be greater for projects in countries where:

An international project's NPV is ____ related to consumer demand and ____ related to the project's salvage value.

An MNC is considering establishing a two-year project in New Zealand with a $30 million initial investment. The firm's cost of capital is 12%. The required rate of return on this project is 18%. The project is expected to generate cash flows of NZ$12 million in Year 1 and NZ$30 million in Year 2, excluding the salvage value. Assume no taxes, and a stable exchange rate of $.60 per NZ$ over the next two years. All cash flows are remitted to the parent. What is the break-even salvage value?

The break-even salvage value of a particular project is the salvage value necessary to: