Question 1

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.

Accepted Answer

A) True 
 B)False

Question 2

Holding other factors constant, an international project's NPV is ____ related to consumer demand and ____ related to the project's salvage value.​

Accepted Answer

A)  ​positively; positively 
B)  ​positively; negatively 
C)  ​negatively; positively 
D)  ​negatively; negatively

Question 3

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.

Accepted Answer

A) True 
 B)False

Question 4

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.

Accepted Answer

A) True 
 B)False

Question 5

A foreign project generates a negative cash flow in Year 1 and positive cash flows in Years 2 through 5. The NPV for this project will be higher if the foreign currency ____ in Year 1 and ____ in Years 2 through 5.​

Accepted Answer

A)  ​depreciates; depreciates 
B)  ​appreciates; appreciates 
C)  ​depreciates; appreciates 
D)  ​appreciates; depreciates

Question 6

If an MNC exports to a country and then establishes a subsidiary to produce and sell the same product in that country, cash flows from existing operations would likely be ____ affected by the project. If an MNC establishes a foreign manufacturing subsidiary that buys components from the parent, the cash flows from existing operations would likely be ____ affected by the project.​

Accepted Answer

A)  ​adversely; adversely 
B)  ​favorably; adversely 
C)  ​favorably; favorably 
D)  ​adversely; favorably

Question 7

Blocked funds may penalize a project if the return on the forced reinvestment in the foreign country is less than the required rate of return on the project.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

When a foreign subsidiary is not wholly owned by the parent and a foreign project is partially financed with retained earnings of the parent and of the subsidiary, then:

Accepted Answer

A)  the parent's perspective should be used to evaluate a foreign project. 
B)  the subsidiary's perspective should be used to evaluate a foreign project. 
C)  the foreign project should enhance the value of both the parent and the subsidiary. 
D)  None of these are correct.

Question 10

Fixed costs are expenses that are not affected by consumer demand, so they can be estimated without an estimate of that demand when doing multinational capital budgeting.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A)  determining a probability distribution of NPVs. 
B)  determining the time required to achieve a positive NPV. 
C)  determining how the required rate of return changes over time. 
D)  determining how the cost of capital changes over time. 
E)  determining a probability distribution of NPVs AND determining the time required to achieve a positive NPV.

Question 12

Other things being equal, firms from a particular home country will engage in more international acquisitions if they expect foreign currencies to ____ against their home currency, and if their cost of capital is relatively ____.​

Accepted Answer

A)  ​appreciate; low 
B)  ​appreciate; high 
C)  ​depreciate; high 
D)  ​depreciate; low

Question 13

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.​

Accepted Answer

A)  ​should be; should be 
B)  ​should definitely not be; should definitely not be 
C)  ​should definitely not be; should be 
D)  ​should be; should definitely not be

Question 14

In conducting a multinational capital budgeting analysis, the subsidiary's perspective should always be used.

Accepted Answer

A) True 
 B)False

Question 15

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?

Accepted Answer

A)  the withholding tax rate 
B)  the euro's exchange rate 
C)  the U.S. tax rate on earnings remitted to the United States 
D)  the German government's tax rate 
E)  the withholding tax rate AND the U.S. tax rate on earnings remitted to the United States

Question 16

Assume a U.S.-based MNC has a Chilean subsidiary that annually remits 30 million Chilean pesos to the United States. If the peso ____, the dollar amount of remitted funds ____.

Accepted Answer

A)  appreciates; decreases 
B)  depreciates; is unaffected 
C)  appreciates; is unaffected 
D)  depreciates; decreases 
E)  depreciates; is unaffected AND appreciates; is unaffected

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.

Holding other factors constant, an international project's NPV is related to consumer demand and related to the project's salvage value.

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.

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.

A foreign project generates a negative cash flow in Year 1 and positive cash flows in Years 2 through 5. The NPV for this project will be higher if the foreign currency in Year 1 and in Years 2 through 5.

Blocked funds may penalize a project if the return on the forced reinvestment in the foreign country is less than the required rate of return on the project.

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

When a foreign subsidiary is not wholly owned by the parent and a foreign project is partially financed with retained earnings of the parent and of the subsidiary, then:

Fixed costs are expenses that are not affected by consumer demand, so they can be estimated without an estimate of that demand when doing multinational capital budgeting.

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

Other things being equal, firms from a particular home country will engage in more international acquisitions if they expect foreign currencies to against their home currency, and if their cost of capital is relatively .

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.

In conducting a multinational capital budgeting analysis, the subsidiary's perspective should always be used.

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?

Assume a U.S.-based MNC has a Chilean subsidiary that annually remits 30 million Chilean pesos to the United States. If the peso , the dollar amount of remitted funds .

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.

Holding other factors constant, an international project's NPV is ____ related to consumer demand and ____ related to the project's salvage value.​

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.

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.

A foreign project generates a negative cash flow in Year 1 and positive cash flows in Years 2 through 5. The NPV for this project will be higher if the foreign currency ____ in Year 1 and ____ in Years 2 through 5.​

Blocked funds may penalize a project if the return on the forced reinvestment in the foreign country is less than the required rate of return on the project.

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

When a foreign subsidiary is not wholly owned by the parent and a foreign project is partially financed with retained earnings of the parent and of the subsidiary, then:

Fixed costs are expenses that are not affected by consumer demand, so they can be estimated without an estimate of that demand when doing multinational capital budgeting.

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

Other things being equal, firms from a particular home country will engage in more international acquisitions if they expect foreign currencies to ____ against their home currency, and if their cost of capital is relatively ____.​

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.​

In conducting a multinational capital budgeting analysis, the subsidiary's perspective should always be used.

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?

Assume a U.S.-based MNC has a Chilean subsidiary that annually remits 30 million Chilean pesos to the United States. If the peso ____, the dollar amount of remitted funds ____.

Holding other factors constant, an international project's NPV is related to consumer demand and related to the project's salvage value.

A foreign project generates a negative cash flow in Year 1 and positive cash flows in Years 2 through 5. The NPV for this project will be higher if the foreign currency in Year 1 and in Years 2 through 5.

Other things being equal, firms from a particular home country will engage in more international acquisitions if they expect foreign currencies to against their home currency, and if their cost of capital is relatively .

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.

Assume a U.S.-based MNC has a Chilean subsidiary that annually remits 30 million Chilean pesos to the United States. If the peso , the dollar amount of remitted funds .