Multinational Capital Budgeting And Cross-border Acquisitions

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Multinational Financial Management: Opportunities and Challenges
The International Monetary System
The Balance of Payments
Financial Goals and Corporate Governance
The Foreign Exchange Market
International Parity Conditions
Foreign Currency Derivatives: Futures and Options
Interest Risk and Swaps
Foreign Exchange Rate Determination and Intervention
Transaction Exposure
Translation Exposure
Operating Exposure
Global Cost and Availability of Capital
Funding the Multinational Firm
Multinational Tax Management
International Trade Finance
Foreign Direct Investment and Political Risk
Multinational Capital Budgeting and Cross-Border Acquisitions

All Questions

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:

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cost of capital analysis.

capital budgeting.

capital structure analysis.

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?

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Identify the initial capital invested.

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

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

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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net present value

internal rate of return

accounting rate of return

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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Parent cash flows must be distinguished from project cash flows.

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

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

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

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

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.

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.

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local; be subordinated to; parent's

local; not be subordinated to; parent's

parent's; be subordinated to; local

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.

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20%

40%

50%

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:

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subsidiary.

affiliate.

partner.

rival.

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Question 9

Multiple Choice

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

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pro rated

50%

75%

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?

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Expropriation of cash flows by a foreign government.

The U.S. government restricts trade with a foreign country where your firm has investments.

The foreign government nationalizes all foreign-owned assets.

All of the above are examples of political risk.

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Multinational Capital Budgeting And Cross-border Acquisitions

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

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

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

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

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

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

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

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

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

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

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.

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

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.

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

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

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.

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.

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

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

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