Question 1

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

Accepted Answer

A) True 
 B)False  True

Question 2

Which of the following would probably not cause the stock price of a foreign target to decrease?

Accepted Answer

A)  Its expected cash flows decline. 
B)  General stock market conditions in the foreign country are deteriorating. 
C)  Investors anticipate that the target will be acquired. 
D)  All of the above will cause the target's stock price to decrease. 
A)  Its expected cash flows decline. 
B)  General stock market conditions in the foreign country are deteriorating. 
C)  Investors anticipate that the target will be acquired. 
D)  All of the above will cause the target's stock price to decrease. C

Question 3

The valuation of a target (from the parent's perspective) should increase when the potential acquirer's cost of capital increases.

Accepted Answer

A) True 
 B)False  False

Question 4

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

Accepted Answer

A)  interest rates have declined. 
B)  the MNC's cost of capital has decreased. 
C)  the host government has increased its tax rates substantially. 
D)  exchange rate projections changed from a depreciation to an appreciation of the foreign currency. 
A)  interest rates have declined. 
B)  the MNC's cost of capital has decreased. 
C)  the host government has increased its tax rates substantially. 
D)  exchange rate projections changed from a depreciation to an appreciation of the foreign currency.

Question 5

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.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A)  The firm can immediately expand its international business. 
B)  An international acquisition typically generates quicker cash flows than the establishment of a new subsidiary. 
C)  International acquisitions are generally cheaper than the establishment of a new subsidiary. 
D)  An international acquisition typically generates larger cash flows than the establishment of a new subsidiary. 
E)  All of the above are advantages of international acquisitions. 
A)  The firm can immediately expand its international business. 
B)  An international acquisition typically generates quicker cash flows than the establishment of a new subsidiary. 
C)  International acquisitions are generally cheaper than the establishment of a new subsidiary. 
D)  An international acquisition typically generates larger cash flows than the establishment of a new subsidiary. 
E)  All of the above are advantages of international acquisitions.

Question 7

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.

Accepted Answer

A)  2.4 
B)  60.0 
C)  41.7 
D)  12 
A)  2.4 
B)  60.0 
C)  41.7 
D)  12

Question 8

An MNC should periodically reassess its investments to determine whether to divest them.

Accepted Answer

A) True 
 B)False

Question 9

As far as the managerial talent of the target is concerned:

Accepted Answer

A)  the manner in which the acquirer plans to deal with the managerial talent will affect the estimated cash flows to be generated by the target. 
B)  downsizing will reduce expenses and increase productivity and revenues. 
C)  governments of some countries are likely to intervene and prevent the acquisition if downsizing is anticipated. 
D)  all of the above 
E)  A and C only 
A)  the manner in which the acquirer plans to deal with the managerial talent will affect the estimated cash flows to be generated by the target. 
B)  downsizing will reduce expenses and increase productivity and revenues. 
C)  governments of some countries are likely to intervene and prevent the acquisition if downsizing is anticipated. 
D)  all of the above 
E)  A and C only

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A)  The firm can immediately expand its international business. 
B)  The firm benefits from existing customer relationships. 
C)  International acquisitions are generally cheaper than the establishment of a new subsidiary. 
D)  An international acquisition typically generates quicker and larger cash flows than the establishment of a new subsidiary. 
E)  All of the above are advantages of international acquisitions. 
A)  The firm can immediately expand its international business. 
B)  The firm benefits from existing customer relationships. 
C)  International acquisitions are generally cheaper than the establishment of a new subsidiary. 
D)  An international acquisition typically generates quicker and larger cash flows than the establishment of a new subsidiary. 
E)  All of the above are advantages of international acquisitions.

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

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.

Accepted Answer

A) True 
 B)False

Question 14

An MNC valuing a foreign target for acquisition purposes must account for all of the following, except:

Accepted Answer

A)  the foreign exchange rate. 
B)  withholding taxes imposed by the host government. 
C)  blocked-funds restrictions. 
D)  income taxes imposed by the U.S. government. 
E)  An MNC must account for all of the above. 
A)  the foreign exchange rate. 
B)  withholding taxes imposed by the host government. 
C)  blocked-funds restrictions. 
D)  income taxes imposed by the U.S. government. 
E)  An MNC must account for all of the above.

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

International governance is achieved by all of the following except:

Accepted Answer

A)  poison pills. 
B)  board of directors. 
C)  institutional investors. 
D)  blockholders. 
E)  All of the above achieve governance. 
A)  poison pills. 
B)  board of directors. 
C)  institutional investors. 
D)  blockholders. 
E)  All of the above achieve governance.

Question 17

It is always the best course of action to divest of a foreign project if the expected cash flows from the project decline substantially.

Accepted Answer

A) True 
 B)False

Question 18

Based on information in your text, all of the following factors should be considered in an international acquisition, except:

Accepted Answer

A)  the target's willingness to be acquired. 
B)  the target's previous acquisition history. 
C)  the target's previous cash flows. 
D)  the target's local economic conditions. 
A)  the target's willingness to be acquired. 
B)  the target's previous acquisition history. 
C)  the target's previous cash flows. 
D)  the target's local economic conditions.

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

Downsizing reduces expenses but may also reduce productivity and revenue.

Accepted Answer

A) True 
 B)False

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

Which of the following would probably not cause the stock price of a foreign target to decrease?

The valuation of a target (from the parent's perspective) should increase when the potential acquirer's cost of capital increases.

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

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.

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

An MNC should periodically reassess its investments to determine whether to divest them.

As far as the managerial talent of the target is concerned:

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

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

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.

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.

An MNC valuing a foreign target for acquisition purposes must account for all of the following, except:

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.

International governance is achieved by all of the following except:

It is always the best course of action to divest of a foreign project if the expected cash flows from the project decline substantially.

Based on information in your text, all of the following factors should be considered in an international acquisition, except:

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.

Downsizing reduces expenses but may also reduce productivity and revenue.

Multinational Financial Management: an Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships Among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Exam 15: International Corporate Governance and Control

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

Which of the following would probably not cause the stock price of a foreign target to decrease?

The valuation of a target (from the parent's perspective) should increase when the potential acquirer's cost of capital increases.

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

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.

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

An MNC should periodically reassess its investments to determine whether to divest them.

As far as the managerial talent of the target is concerned:

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

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

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.

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.

An MNC valuing a foreign target for acquisition purposes must account for all of the following, except:

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.

International governance is achieved by all of the following except:

It is always the best course of action to divest of a foreign project if the expected cash flows from the project decline substantially.

Based on information in your text, all of the following factors should be considered in an international acquisition, except:

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.

Downsizing reduces expenses but may also reduce productivity and revenue.

Multinational Financial Management: an Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships Among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters