Exam 14: Multinational Capital Budgeting

The required rate of return used to discount the relevant cash flows from a foreign project may differ from the MNC's cost of capital because of that particular project's risk.

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

Like income tax treaties, ____ help to avoid double taxation and stimulate direct foreign investment.

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

Other things being equal, a blocked funds restriction is more likely to have a significant adverse effect on a project if the currency of that country is expected to ____ over time, and if the interest rate in that country is relatively ____.

In multinational capital budgeting, depreciation is treated as a cash outflow.

A firm considers an exporting project and will invoice the exports in dollars. The expected cash flows in dollars would be more difficult if the currency of the foreign country is ____.

Three common methods to incorporate an adjustment for risk into the capital budgeting analysis are the use of risk-adjusted discount rates, sensitivity analysis, and simulation.

If the parent charges the subsidiary administrative fees, the earnings from the project will appear low to the parent and high to the subsidiary.

If the parent's government imposes a ____ tax rate on funds remitted from a foreign subsidiary, a project is less likely to be feasible from the ____ point of view.

The impact of blocked funds on the net present value of a foreign project will be greater if interest rates are ____ in the host country and there are ____ investment opportunities in the host country.

When conducting a capital budgeting analysis and attempting to account for effects of exchange rate movements for a foreign project, inflation ____ included explicitly in the cash flow analysis, and debt payments by the subsidiary ____ included explicitly in the cash flow analysis.

Everything else being equal, the ____ the depreciation expense is in a given year, the ____ a foreign project's NPV will be.

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:

In capital budgeting analysis, the use of a cumulative NPV is useful for:

Sometimes, a multinational project may appear feasible from the subsidiary's perspective but not from the parent's perspective and vice versa.

In general, increased investment by the parent in the foreign subsidiary causes more exchange rate exposure to the parent over time because the cash flows remitted to the parent will be larger.

As the financing of a foreign project by the parent ____ relative to the financing provided by the subsidiary, the parent's exchange rate exposure ____.

When assessing a German project administered by a German subsidiary of a U.S.-based MNC solely from the German subsidiary's perspective, which variable will most likely influence the capital budgeting analysis?

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.