Deck 14: International Budgeting and Performance Evaluation

Question 1

For Japanese MNEs, sales is the most often used measure of performance.

Answer 1

True

Question 2

Because of the reliance on budgets, American managers reduce "slack" in budgets.

Answer 2

False

Question 3

A strategic control process in a MNE should include

A) personal rewards
B) central intervention
C) periodic reviews
D) all of the above.

Answer 3

D

Question 4

The right objectives should be based on
I).analysis of the competition
II).strengths of the firm

A) only I
B) only II
C) either I or II
D) I and II

Question 5

A strategic control process in a MNE

A) involves a one-directional flow of products, capital and knowledge.
B) should be formal but not necessarily rigid.
C) will not work if the firm cannot get good data on global competitors.
D) all of the above.

Question 6

The international environment and global strategy of the MNE are very influential in the budgeting process in that

A) the value of budgets is equally accepted worldwide due to the increased flow of information about evaluation techniques.
B) transfer prices can affect profitability and, therefore, performance evaluation.
C) managers in countries with wide variations in inflation rates usually can predict those rate variations for budgeting purposes.
D) all of the above.

Question 7

For U.S. MNEs, ROI is one of the most often used measures of performance.

Question 8

Which of the following is true concerning the performance evaluation of implementors.

A) They need relatively flexible performance evaluation systems.
B) They rely more on behavioral controls.
C) The rely on outcome controls.
D) They need more autonomy than do global innovators.

Question 9

In order to maximize global profits, foreign subsidiaries should always be established as profit centers.

Question 10

Lessard and Lorange's study suggests that managers of foreign subsidiaries should be held accountable for foreign exchange affects.

Question 11

Implementors need much more autonomy than do global innovators.

Question 12

The concept of the value of participation in budgeting may be uniquely Anglo-American.

Question 13

Which of the following does not accurately describe economic value added.

A) It is after-tax operating profit minus the total annual cost of capital.
B) It includes the cost of debt and the cost of equity.
C) It is a measure of the value added or depleted from shareholder value in one period.
D) It requires that different costs of capital be used in different country settings.

Question 14

The benefits of a strategic control process in a MNE include

A) more stretching of performance standards
B) greater realism in planning
C) more motivation for business unit managers
D) all of the above.

Question 15

Foreign subsidiaries have a better understanding of financial performance with
I).financial statements in the home headquarter's currency
II).financial statement in the local currency

A) I
B) II
C) either I or II
D) I and II

Question 16

Benchmarking performance based on global competitors is sound practice, because since it is easy to get good data on them.

Question 17

A challenge for the strategic control process is

A) clarity in planning
B) the process gets big and bureacratized
C) nonfinancial measures
D) annual operating plans

Question 18

National tax authorities have adopted the arm's length standard.

Question 19

Which of the following is not true concerning the performance evaluation of global innovators.

A) They need relatively flexible performance evaluation systems.
B)They rely more on behavioral controls.
C) The rely on outcome controls.
D) They need more autonomy than do implementors.

Question 20

Global innovators and integrated players tend to rely more on outcome controls than on behavioral controls.

Question 21

Which of the following Lessard/Lorange translation approaches forces management to predict the future?

A) setting the budget and tracking performance at the actual rate at the time of the budget.
B) setting the budget at the actual rate at the time of the budget and tracking performance at the actual rate at the end of the period. **c. setting the budget at the projected rate and tracking performance at the rate at the end of the period.
D) updating the budget for the end of period rate and tracking performance at the end of period rate.

Question 22

If a U.S. parent is shipping inventory to its Mexican subsidiary at an arbitrarily low transfer price,

A) the U.S. parent will show a higher pre-tax profit.
B) the Mexican government will collect relatively higher income taxes.
C) the Mexican government will collect relatively high import tariffs.
D) the Mexican subsidiary will show relatively lower profits.

Question 23

Based on survey information, Anglo-American managers prefer

A) not to use ROI performance evaluation systems for foreign operations.
B) shorter term but more quantitative objectives.
C) home currency for transfer pricing .
D) their companies not use local currency information for performance evaluation.

Question 24

Which of the following describe some of the national practices in performance evaluation techniques.

A) British firms rely more on ROI and sales growth.
B) U.S. firms rely more on budgets than do British firms.
C) Japanese firms rely more on sales growth and market share than do U.S. firms.
D) All of the above.

Question 25

There have been few good studies on the use of local currency versus parent currency in establishing budgets. However, the Appleyard study of a small sample of British firms found that

A) most firms set their budgets in local currency.
B) most firms set their budgets in sterling.
C) most firms set their budgets in both sterling and the local currency.
D) most firms set their budgets in the local currency, although all of them saw the final results in sterling.

Question 26

A major advantage of offshore production is that

A) labor is higher offshore.
B) the overall cost structure in a low-wage country is lower.
C) companies can get better quality offshore than they can in their domestic market.
D) foreign exchange risk can be eliminated.

Question 27

The local currency should be used for performance evaluation purposes if
__a) the MNE leaves considerable autonomy to the foreign operation.
__b) sales are made in the foreign currency.
__c) the foreign currency is relatively stable.
__d) the local manager is given authority and responsibility to hedge foreign exchange differences.

Question 28

Which of the following is true concerning transfer pricing practices?

A) The U.S. is a relatively rigorous country in terms of transfer pricing, but British are relatively lax.
B) U.S. tax law does not allow U.S. firms to use arms-length prices.
C) U.S. companies can apply for an Advanced Determination Ruling on their transfer pricing policies, except for transfers to developing countries.
D) The United States is not the only country to use Advanced Determination Rulings.

Question 29

In the budgeting process,

A) the local currency should be used to set the budget and monitor performance.
B) the local currency budget should be translated into dollars at the projected exchange rate.
C) actual results should be translated into dollars at the same rate at which the budget was set.
D) translated budgets allow management to look at the same numbers that shareholders use.

Question 30

When comparing Japanese and U.S. firms for budget purposes,

A) Japanese firms take much longer to prepare budgets.
B) U.S. managers are less likely to be evaluated by the budgets.
C) Japanese managers are more likely to have their salaries and bonuses affected by budgets.
D) Japanese managers are more likely to use budget variances to recognize problems on a timely basis.

Question 31

Return on investment is a popular performance evaluation technique of MNEs, because

A) it takes into consideration transfer pricing policies.
B) it allows the parent company to compare operations more easily.
C) it is an accurate indicator of currency differences.
D) it allows the MNEs to focus on market share.

Question 32

Bailes and Assada report differences between performance measurement by Japanese and American companies

A) Japanese most frequently use sales and Americans most frequently use return on investment
B) Japanese most frequently use return on investment and Americans most frequently use sales
C) Japanese most frequently use asset turnover and Americans most frequently use profit minus corporate costs
D) Japanese most frequently use market share and Americans most frequently use profit minus corporate costs

Question 33

According to the Abdallah and Keller study on performance evaluation systems of MNEs,

A) budgets were equally important as a measure of foreign subsidiary and foreign subsidiary management performance.
B) ROI is no longer an important technique of evaluating performance.
C) Companies tend to evaluate foreign subsidiary performance but not performance of foreign management.
D) foreign currency is not a critical element in performance evaluation of MNEs due to widespread use of the current rate method.

Question 34

According to the Robbins and Stobaugh study of performance evaluation systems of MNEs,

A) intangible assets considered in the investment decision are usually covered in performance evaluation systems.
B) foreign and domestic subsidiaries are judged on different bases.
C) ROI is the most utilized evaluation measure.
D) all of the companies used local currency rather than dollar budgets.

Question 35

Market-driven standards are more appropriate for products

A) that are in the star and cash cow phases of the product cycle.
B) in a mature, commodity business.
C) manufactured in Japan but not Europe.
D) in a firm following a product differentiation strategy in a fast-growing, fast-changing business.

Question 36

Based on most surveys of U.S.-based MNE performance evaluation systems,

A) completely separate performance evaluation systems are used for foreign operations.
B) return on investment is the most widely utilized performance evaluation measure.
C) capital and operating budgets are not very useful due to currency differences.
D) very few companies use local currency information for performance evaluation.

Question 37

Which of the following Lessard/Lorange translation approaches forces management to predict the future?

A) A-1
B) A-3
C) P-3
D) E-3

Question 38

If the Brazilian subsidiary of a U.S. company ships components to its U.S. parent at an arbitrarily high transfer price,

A) the U.S. parent will show a higher pre-tax profit.
B) the Brazilian government will collect relatively lower income taxes.
C) U.S. Customs will collect higher tariffs.
D) the Brazilian subsidiary will show relatively lower profits.

Question 39

If a U.S. parent is shipping inventory to its Chinese subsidiary at an arbitrarily high transfer price,

A) the U.S. parent will show a lower pre-tax profit.
B) the Chinese government will collect relatively higher income taxes.
C) the U.S. government will collect relatively high import tariffs.
D) the Chinese subsidiary will show relatively lower profits.

Question 40

Which of the following Lessard/Lorange translation approaches results in a foreign exchange variance?

A) A-1
B) P-2
C) P-3
D) E-3

Question 41

In transferring the domestic performance evaluation system into the international environment, MNEs

A) are creating a more expensive performance evaluation system.
B) miss significant foreign events that could affect performance.
C) are taking into consideration that there are strategic differences in subsidiaries.
D) are sacrificing comparability for understandability.

Question 42

A performance evaluation tool that measures after-tax operating profit minus the total annual cost of capital is

A) return on investment.
B) return on assets.
C) economic value added.
D) residual income.

Question 43

A performance evaluation tool that connects financial performance with non-financial drivers is

A) return on investment.
B) balanced scorecard.
C) economic value added.
D) residual income