Exam 15: International Corporate Governance and Control

An MNC's parent would consider investing in a target only if the estimated present value of the cash flows it would ultimately receive from the target over time ____ the initial outlay necessary to purchase the target.

Which of the following is not an advantage of international acquisitions over the establishment of a new subsidiary?

The government of a country may prevent a foreign firm from acquiring local targets and downsizing the targets.

According to your text, all of the following are factors to be considered in an international acquisition, except

When viewed as a project, the international acquisition usually generates quicker and larger cash flows than the establishment of a new subsidiary, but it also requires a larger initial outlay.

The valuation of a newly privatized business is generally more difficult than the valuation of a publicly traded firm because:

If an MNC targets a successful foreign company with plans to continue the target's local business in a more efficient manner, the risk of the business will be relatively ____, and therefore the MNC's required return from acquiring the target will be relatively ____.

Economic conditions in the host country are probably more important for an MNC that intends to use the target to generate revenues in the host country than an MNC that intends to focus on exporting from the target's home country.

Even after an MNC's accept/reject decision of a foreign acquisition has been made, it should be reassessed at various times. In fact, this analysis may indicate that a previously accepted project should be divested.

Even if an existing business adds value to an MNC, it may be worthwhile to assess whether the business would generate more value to the MNC if it was restructured.

At present, U.S. firms acquire more targets in the former Soviet Union than in any other country.

International governance is achieved by all of the following except:

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. Based on the information provided above, the net present value of the Malaysian target is $____ million.

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 target's board has indicated that it finds a premium of 30 percent appropriate. You have been asked to negotiate for Klimewsky with the Malaysian target. What is the maximum percentage premium you should be willing to offer?

Regarding the valuation of privatized businesses in less developed countries, ____ can normally be estimated with a high degree of accuracy.

The valuation of a proposed international divestiture can be determined by comparing the present value of the cash flows if the project is continued to the proceeds that would be received (after taxes) if the project is divested.

An acquirer based in a low-tax country may be able to generate higher cash flows from acquiring a foreign target than an acquirer based in a high-tax country.

Which of the following is not true regarding a target's previous cash flows?

A previously undertaken project in a foreign country may no longer be feasible because:

If a target is privately held, general stock market conditions will not affect the amount that an acquirer has to pay for a foreign target.