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Question 1
Free
Multiple Choice

The traditional financial analysis applied to foreign or domestic projects, to determine the project's value to the firm is called:

Choose correct answer/s
A

cost of capital analysis.

B

capital budgeting.

C

capital structure analysis.

D

agency theory.

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Question 2
Free
Multiple Choice

Which of the following is NOT a basic step in the capital budgeting process?

Choose correct answer/s
A

Identify the initial capital invested.

B

Estimate the cash flows to be derived from the project over time.

C

Identify the appropriate interest rate at which to discount future cash flows.

D

All of the above are steps in the capital budgeting process.

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Question 3
Free
Multiple Choice

Of the following capital budgeting decision criteria, which does NOT use discounted cash flows?

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A

net present value

B

internal rate of return

C

accounting rate of return

D

All of these techniques typically use discounted cash flows.

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Question 4
Free
Multiple Choice

Which of the following is NOT a reason why capital budgeting for a foreign project is more complex than for a domestic project?

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A

Parent cash flows must be distinguished from project cash flows.

B

Parent firms must specifically recognize remittance of funds due to differing rules and regulations concerning remittance of cash flows, taxes, and local norms.

C

Differing rates of inflation exist between the foreign and domestic economies.

D

All of the above add complexity to the international capital budgeting process.

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Question 5
Free
Multiple Choice

For purposes of international capital budgeting, which of the following statements is NOT true?

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A

Managers must evaluate political risk because political events can drastically reduce the value or availability of expected cash flows.

B

Parent cash flows must be distinguished from project cash flows. Each of these two types of flows contributes to a different view of value.

C

An array of nonfinancial payments can generate cash flows from subsidiaries to the parent, including payment of license fees and payments for imports from the parent.

D

All of the above are true statements.

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Question 6
Multiple Choice

Project evaluation from the ________ viewpoint serves some useful purposes and/but should ________ the ________ viewpoint.

Choose correct answer/s
A
local; be subordinated to; parent's
B
local; not be subordinated to; parent's
C
parent's; be subordinated to; local
D
none of the above
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Question 7
Multiple Choice

For financial reporting purposes, U.S. firms must consolidate the earnings of any subsidiary that is over ________ owned.

Choose correct answer/s
A
20%
B
40%
C
50%
D
75%
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Question 8
Multiple Choice

A foreign firm that is 20% to 49% owned by a parent is called a/an:

Choose correct answer/s
A
subsidiary.
B
affiliate.
C
partner.
D
rival.
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Question 9
Multiple Choice

Affiliate firms are consolidated on the parent's financial statements on a ________ basis.

Choose correct answer/s
A
pro rated
B
50%
C
75%
D
100%
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Question 10
True/False

When engaged in international capital budgeting, the analyst must identify the initial amount of capital invested or put at risk.

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True
False
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Question 11
True/False

In international capital budgeting, the appropriate discount rate for determining the present value of the expected cash flows is always the firm's domestic WACC.

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True
False
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Question 12
True/False

For purposes of international capital budgeting, it is NOT important to distinguish between parent and total project cash flows.

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True
False
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Question 13
True/False

For purposes of international capital budgeting, parent cash flows often depend on the form of financing. Thus, we cannot clearly separate cash flows from financing decisions, as we can in domestic capital budgeting.

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True
False
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Question 14
True/False

There are no important differences between domestic and international capital budgeting methods.

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True
False
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Question 15
True/False

It is important that firms adopt a common standard for the capital budgeting process for choosing among foreign and domestic projects.

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True
False
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Question 16
True/False

The only proper way to estimate the NPV of a foreign project is to discount the appropriate cash flows first and then convert them to the domestic currency at the current spot rate.

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True
False
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Question 17
True/False

For purposes of international capital budgeting, evaluation of a project from the PARENT viewpoint serves some useful purposes, but it should be subordinated to evaluation from the LOCAL's viewpoint.

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True
False
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Question 18
True/False

Multinational firms should invest only if they can earn a risk-adjusted return greater than locally based competitors can earn on the same project.

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True
False
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Question 19
Essay

The authors highlight a strong theoretical argument in favor of analyzing any foreign project from the viewpoint of the parent. Provide at least three reasons why the parent's viewpoint is superior to the local viewpoint and give an example of when the local viewpoint fails to maximize the value of the firm.

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Question 20
Multiple Choice

Which of the following is NOT an example of political risk?

Choose correct answer/s
A
Expropriation of cash flows by a foreign government.
B
The U.S. government restricts trade with a foreign country where your firm has investments.
C
The foreign government nationalizes all foreign-owned assets.
D
All of the above are examples of political risk.
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