Question 1

Which capital budgeting technique is preferred in all major industrialized countries?

Accepted Answer

A)   Net present value
B)   Internal rate of return
C)   Payback period
D)   There is no particular preferred capital budgeting technique across countries D

Question 2

Estimating the expected cash inflows and outflows from proposed projects is performed in what step of the capital budgeting process?

Accepted Answer

A)   Project identification
B)   Project evaluation
C)   Project monitoring
D)   Project review B

Question 3

According to surveys in the U.S. and the United Kingdom, what are the most frequently used financial measures to evaluate subsidiary performance by MNCs?

Accepted Answer

A)   Stock price, return on investment, profit
B)   Budgeted profit vs. actual profit, stock price, sales
C)   Budgeted profit vs. actual profit, return on investment, profit
D)   Internal rate of return, profit, return on investment C

Question 4

What is the major limitation of using the payback period as a tool in capital budgeting?

Accepted Answer

A)   It is difficult to calculate without a computer.
B)   It favors large investments.
C)   It ignores the time value of money.
D)   It does not consider cash flows.

Question 5

The Squeaky Division of Household Products Corporation showed a net loss of £5,000,000 last year, but Squeaky's manager received a bonus for outstanding performance. Why would Household Products' management control system appropriately allow for this apparent inconsistency?

Accepted Answer

A)   Economic factors outside the manager's control caused the loss.
B)   Household Products' management control system is ineffective.
C)   The bonus represents a payoff to Squeaky's manager to keep her quiet about the loss.
D)   The loss was due to controllable factors.

Question 6

How can a multinational enterprise incorporate its perception of high level of risk into its capital budgeting process?

Accepted Answer

A)   Conservative estimates of cash inflows
B)   Liberal estimates of expected cash outflows
C)   High discount rate
D)   All of the above

Question 7

Where would a divisional manager look to find the targets she is expected to reach in the next fiscal year?

Accepted Answer

A)   Strategic plan
B)   Capital budget
C)   Operating budget
D)   Strategic formulation

Question 8

Which of the following is NOT part of the capital budgeting process?

Accepted Answer

A)   Project identification
B)   Project evaluation
C)   Project monitoring
D)   All of the above are parts of the capital budgeting process.

Question 9

How should multinational corporations reduce economic exposure?

Accepted Answer

A)   Hedging foreign currency using a call option
B)   Hedging foreign currency using put options
C)   Competitive strategic and operational decisions
D)   Forward contracts on the foreign currency

Question 10

Hyperinflation causes what kind of risk for a multinational corporation?

Accepted Answer

A)   Economic risk
B)   Physical risk
C)   Financial risk
D)   Political risk

Question 11

What is the role of accounting in formulating strategy?

Accepted Answer

A)   Quantifying opportunities and threats
B)   Preparing budgets
C)   Making estimates of costs and benefits of various alternatives
D)   All of the above

Question 12

What is the limitation of using the net present value for evaluating capital investment alternatives?

Accepted Answer

A)   Ignores the time value of money
B)   Does not consider cash flows
C)   Cannot be used to compare projects of different size
D)   All of the above are limitations of the net present value method.

Question 13

MSM Ltd. has a strategy of being the first to market with new products and so it measures the number of new products introduced each year. Where does this measure fit in the balanced scorecard?

Accepted Answer

A)   Financial perspective
B)   Customer perspective
C)   Internal business process perspective
D)   Innovation and learning perspective

Question 14

Which of the following should NOT be included in implementing performance evaluation systems?

Accepted Answer

A)   Feedback and review
B)   Fair and achievable measures
C)   Understandability
D)   Changing systems annually

Question 15

What is cultural proximity?

Accepted Answer

A)   The extent to which the host cultural ethos permits adoption of the parent company's organizational culture.
B)   Countries located on the same continent.
C)   Relative importance of individual differences among units of a multinational corporation.
D)   A short geographic distance between the host country of one subsidiary and the host country of another subsidiary.

Question 16

Holding managers accountable only for the factors over which they have control is called:

Accepted Answer

A)   management control systems.
B)   responsibility accounting.
C)   decentralization.
D)   centralization.

Question 17

A plan for next year expressed in quantitative terms is referred to as:

Accepted Answer

A)   strategy.
B)   capital budget.
C)   operating budget.
D)   management control system.

Question 18

What term is used to describe a unit of a multinational corporation that takes a leading role in a particular area?

Accepted Answer

A)   Implementer
B)   Global innovator
C)   Local innovator
D)   Integrated player

Question 19

The balanced scorecard includes non-financial measures of performance with the financial measures of performance traditionally used. Which of the following are included in the balanced scorecard?

Accepted Answer

A)   Customer satisfaction
B)   Internal business processes
C)   Innovation and learning
D)   All of the above

Question 20

What is the effect of conducting a sensitivity analysis in capital budgeting?

Accepted Answer

A)   It helps analysts to determine if results are particularly affected by specific estimates.
B)   It complicates the process of making a decision when there are conflicting signals.
C)   Preferences for one capital investment alternative over another will change.
D)   All of the above

Exam 10: Management Accounting Issues in Multinational Corporations