Exam 17: Capital Budgeting for the Multinational Corporation

The ___________ at which the company's products or inputs are traded internally can significantly cause errors in evaluating the profitability of proposed investments.

In capital budgeting what matters is not the project's total cash flow per period,but the ___________ cash flows generated by the project.

If all funds in a project are expected to be blocked by government action in perpetuity,the value of the project is _____.

Cannibalization results when a new project takes away sales from the firm's

Many multinationals are now making small investments in Eastern Europe.These investments

A foreign project that is _____ when valued on its own can be ________ from the parent firm's standpoint.

Suppose a firm projects cash flows of $2.5 million,$3 million,and $4 million for years 1,2,and 3,respectively,on an initial investment in Ecuador of $22 million.The firm projects a perpetuity of $5 million in years 4 and beyond.If the required return on this investment is 17%,how large does the probability of expropriation in year 5 have to be before the investment has a negative NPV? Expected compensation in the event of expropriation is $3 million.

General Tin GT is worried that its mine in Peru will be expropriated during the next 12 months.The Peruvian government has promised,however,to pay compensation of $15 million at the year's end if it expropriates the mine.GT believes that this promise would be kept.If expropriation does not occur this year,it will not occur anytime in the foreseeable future.The mine is expected to be worth $50 million at the end of the year.A wealthy Peruvian has just offered GT $19 million for the mine today.If GT's risk-adjusted discount rate is 22%,what is the probability of expropriation at which GT is just indifferent between selling now or holding on to its mine?

According to the net \present value NPV rule,projects with a positive NPV should be

When evaluating an investment,the MNC should consider the ____________ cash flows generated by the project.

Given the differences that are likely to exist between parent and project cash flows,the relevant cash flows to use in project evaluation are the

Global Industries GI is planning to use some existing equipment from its own facilities in a foreign project.The used equipment has a book value of $2 million but a market value of $6 million.If GI's marginal tax rate is 34%,what is its opportunity cost of using the used equipment in the foreign project?

Suppose that a subsidiary operates in a foreign country with a corporate tax rate of 42% and a withholding tax on dividends of 5%.If the U.S.parent has surplus foreign tax credits,what is the marginal rate of tax on remitted profits from the subsidiary?

____________ such as better quality,faster time to market,and higher customer satisfaction can have a significant impact on corporate cash flows.

A new project is projected to yield $2.5 million annually in after-tax profit,based on a local corporate profit tax rate of 40%.However,this profit figure depends on the use of a transfer price of $30 per unit on a component bought from the parent.If the project requires 100,000 units of this component annually,the impact on project profitability and on parent profitability of a boost in the transfer price to $35 will be _______ and ________,respectively.The parent's marginal tax rate is 34% and the incremental tax on subsidiary remittances to the parent is -3%.

What is the expected real dollar value of the depreciation tax shield in year 10,assuming that the tax write-off is taken at yearend?

Which of the following is NOT a method for incorporating the additional political and economic risk into foreign investment analysis?

Walt Disney Company is contemplating a new theme park somewhere in Southeast Asia.However,it is concerned about cannibalizing sales of Tokyo Disneyland.Walt Disney should

If the discount rate is based solely on the riskiness of the project's anticipated cash flows,we would refer to it as the

When the introduction of a new product takes sales away from the firm's existing products,it is known as ______.