Exam 15: International Corporate Governance and Control

Which of the following is not directly considered in the decision by a U.S.-based MNC to divest a subsidiary?

If potential acquirers are based in different countries, their required rates of return when considering a specific target will only vary if the desired use of the target is different.

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.

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

U.S. firms acquire more target firms in ____ than in any other country.

The valuation of newly privatized businesses is generally more difficult than the valuation of a foreign target that has operated privately for several years.

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:

A foreign target's expected future cash flows generally vary among different MNCs valuing the target.

While acquisitions of privatized businesses may be attractive because of the potential for MNCs to increase their efficiency, the valuation of these businesses is generally more difficult.

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 the amount for any taxes paid. •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% over the following two years. •Cost of goods sold are expected to be 60% 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%. •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 are 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%. -Refer to Exhibit 15-1. The Malaysian target's value based on its stock price is $____ million.

Which of the following tax-related factors need not be considered in assessing a foreign target?

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

Premiums required to entice a target's board of directors to approve an acquisition are usually between 1 and 3 percent of the target's market price.

The earnings of a private European firm are €5 million, and the average P/E ratio of publicly traded European firms in the same industry is 12. This firm is considering the possibility of going public in which it would issue one million shares. If the private firm has similar growth potential and other characteristics similar to other publicly traded firms in the industry, its value can be estimated as ____ million euros.

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.

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.

Acquirers may have different required rates of return because of differences in the ability to use financial leverage.

An international acquisition will typically require that the acquirer pay a premium of 30 percent or more for a public target.

Firms based in ____ tend to acquire more U.S. target firms than the other countries listed here.

Since the cash flows generated by a foreign target will eventually be converted to the parent's currency, there is no need to consider the foreign exchange rate in the capital budgeting process.