Question 1

Which of the following is not a characteristic of a tax system that an MNC would consider when conducting a tax assessment of a country?

Accepted Answer

All of the options listed are characteristics of a tax system that an MNC would consider when conducting a tax assessment of a country. MNCs consider the various tax regimes in different countries to determine the most tax-efficient way of conducting business. Corporate income taxes, withholding taxes, provisions for carrybacks and carryforwards, and tax treaties all impact an MNC's tax liability, and therefore all need to be considered.

Question 2

A U.S.-based MNC has just established a subsidiary in Algeria. Shortly after the plant was built, the MNC determines that its exchange rate forecasts, which had previously indicated a slight appreciation in the Algerian dinar, were probably false. Instead of a slight appreciation, the MNC now expects that the dinar will depreciate substantially due to political turmoil in Algeria. This new development would likely cause the MNC to:

Accepted Answer

A substantial depreciation in the Algerian dinar would decrease the value of the subsidiary's cash flows in U.S. dollar terms. This would result in a lower estimated NPV, as the NPV calculation uses discounted cash flows in U.S. dollars.

Question 3

When evaluating international project cash flows, which of the following factors is relevant?

Accepted Answer

When evaluating international project cash flows, all of these factors are relevant. Future inflation can impact the value of cash flows over time, blocked funds can restrict cash flow availability, and exchange rates can also impact the value of the cash flows. Therefore, all of these factors should be considered when evaluating international project cash flows.

Question 4

The discrepancy between the feasibility of a project in a host country from the perspective of the U.S. parent versus the subsidiary administering the project is likely to be greater for projects in countries where:

Accepted Answer

If the currency of the host country is expected to depreciate consistently, the subsidiary administering the project will have a harder time generating profits and repatriating them to the U.S. parent due to the exchange rate risk. This will likely lead to a greater discrepancy in the feasibility assessment between the U.S. parent and the subsidiary administering the project.

Question 5

According to the text, in order to develop a distribution of possible net present values from international projects, a firm should use:

Accepted Answer

A firm should use simulation to develop a distribution of possible net present values from international projects. This involves creating a model that incorporates various input assumptions and running multiple simulations to generate a range of possible outcomes. This approach allows for a more comprehensive analysis of risks and uncertainties associated with international projects.

Question 6

The impact of blocked funds on the net present value of a foreign project will be greater if interest rates are ____ in the host country and there are ____ investment opportunities in the host country.​

Accepted Answer

The answer of The impact of blocked funds on the...

Question 7

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

Accepted Answer

Consumer demand is a key driver of a project's revenue, and a higher demand leads to higher cash flows and thus a higher NPV. Similarly, the salvage value of a project is an important factor in determining the project's overall cash flows, and a higher salvage value leads to higher NPV. Therefore, the relationship is positive in both cases.

Question 8

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

If the peso depreciates, meaning it loses value relative to the dollar, then it will take more pesos to equal the same amount of dollars. Therefore, the dollar amount of remitted funds will decrease.

Question 9

____ is not a method of incorporating an adjustment for risk into the capital budgeting analysis.​

Accepted Answer

Discriminant analysis is a statistical method used to predict a categorical dependent variable based on a set of independent variables. It is not a method of incorporating an adjustment for risk into the capital budgeting analysis. The other options listed (B, C, and D) are all ways to adjust for risk in capital budgeting analysis.

Question 10

If the parent's government imposes a ____ tax rate on funds remitted from a foreign subsidiary, a project is less likely to be feasible from the ____ point of view.

Accepted Answer

If the parent's government imposes a high tax rate on funds remitted from a foreign subsidiary, it means that when the subsidiary sends money back to the parent company, a significant portion is taken by the government in taxes. This will decrease the amount of profits that the parent company can bring back home, making the project less feasible from the parent's point of view. Therefore, a high tax rate imposed by the parent's government is the most significant factor affecting the feasibility of a project from the parent's point of view.

Question 11

Assume an MNC establishes a subsidiary in a country where it has no other existing business. The present value of parent cash flows from this subsidiary is more sensitive to exchange rate movements when:​

Accepted Answer

When the parent finances the entire investment, the cash flows are more exposed to exchange rate fluctuations, as the returns need to be converted back to the parent company's currency, increasing sensitivity to exchange rate movements.

Question 12

A firm considers an exporting project and will invoice the exports in dollars. Estimating the expected cash flows in dollars would be more difficult if the currency of the foreign country is:

Accepted Answer

If the currency of the foreign country is volatile, it will be more difficult for the firm to estimate the expected cash flows in dollars. Fluctuations in the exchange rate can have a significant impact on the amount of cash received, potentially affecting the profitability of the project. A stable or fixed currency would be easier for the firm to predict and plan for.  Therefore, B is the correct choice.

Question 13

Petrus Co. has a unique opportunity to invest in a two-year project in Australia. The project is expected to generate 1,000,000 Australian dollars (A$) in the first year and A$2,000,000 in the second year. Petrus would have to invest $1,500,000 in the project. Petrus has determined that the cost of capital for similar projects is 14 percent. What is the net present value of this project if the spot rate of the Australian dollar for the two years is forecasted to be $.55 and $.60, respectively?

Accepted Answer

The answer of Petrus Co. has a unique opportunity to...

Question 14

As the financing of a foreign project by the parent ____ relative to the financing provided by the subsidiary, the parent's exchange rate exposure ____.

Accepted Answer

When the parent company increases its financing of a foreign project relative to the financing provided by the subsidiary, both the parent's involvement and exposure to exchange rate fluctuations increase, as it has more at stake in the foreign currency.

Question 15

____ can cause the parent's after-tax cash flows to differ from the subsidiary's after-tax cash flows.​

Accepted Answer

Withholding taxes imposed by the host government can cause the parent's after-tax cash flows to differ from the subsidiary's after-tax cash flows, as they reduce the amount of cash flow that can be repatriated back to the parent company. The other factors listed may affect the subsidiary's earnings, but do not necessarily impact the after-tax cash flows of both the parent and subsidiary.

Question 16

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

When a foreign project is partially financed with retained earnings of the parent and of the subsidiary, both the parent and the subsidiary have a stake in the project's success. Therefore, it is important that the foreign project enhances the value of both the parent and the subsidiary. Both perspectives should be considered in evaluating the project.

Question 17

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

Firms are more likely to engage in international acquisitions if they expect foreign currencies to appreciate against their home currency because the value of their foreign investments will increase in their home currency terms. Additionally, a relatively low cost of capital makes financing the acquisition cheaper, further incentivizing international acquisitions.

Question 18

Everything else being equal, the ____ the depreciation expense is in a given year, the ____ a foreign project's NPV will be.

Accepted Answer

Higher depreciation expense reduces taxable income, leading to tax savings and thus increasing the project's NPV.

Question 19

The required rate of return of a project is ____ the MNC's cost of capital.

Accepted Answer

The required rate of return of a project can vary depending on the specific project's risk and other factors, so it can be greater than, less than, or the same as the MNC's cost of capital.

Question 20

If a foreign project is financed with a subsidiary's retained earnings, the subsidiary's investment could be viewed as an opportunity cost, since the funds could be remitted to the parent rather than invested in the foreign project.

Accepted Answer

Retained earnings are funds that have been earned by the subsidiary but have not been paid out as dividends to the parent company. If the subsidiary chooses to use these funds to finance a foreign project, it means that the parent company is forgoing the opportunity to receive those funds as dividends. Therefore, the subsidiary's investment in the foreign project can be viewed as an opportunity cost for the parent company.

Quiz 15: International Corporate Governance and Control

Which of the following is not a characteristic of a tax system that an MNC would consider when conducting a tax assessment of a country?

When evaluating international project cash flows, which of the following factors is relevant?

The discrepancy between the feasibility of a project in a host country from the perspective of the U.S. parent versus the subsidiary administering the project is likely to be greater for projects in countries where:

According to the text, in order to develop a distribution of possible net present values from international projects, a firm should use:

The impact of blocked funds on the net present value of a foreign project will be greater if interest rates are in the host country and there are investment opportunities in the host country.

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

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 .

____ is not a method of incorporating an adjustment for risk into the capital budgeting analysis.

If the parent's government imposes a tax rate on funds remitted from a foreign subsidiary, a project is less likely to be feasible from the point of view.

Assume an MNC establishes a subsidiary in a country where it has no other existing business. The present value of parent cash flows from this subsidiary is more sensitive to exchange rate movements when:

A firm considers an exporting project and will invoice the exports in dollars. Estimating the expected cash flows in dollars would be more difficult if the currency of the foreign country is:

As the financing of a foreign project by the parent relative to the financing provided by the subsidiary, the parent's exchange rate exposure .

____ can cause the parent's after-tax cash flows to differ from the subsidiary's after-tax cash flows.

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:

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 .

Everything else being equal, the the depreciation expense is in a given year, the a foreign project's NPV will be.

The required rate of return of a project is ____ the MNC's cost of capital.

If a foreign project is financed with a subsidiary's retained earnings, the subsidiary's investment could be viewed as an opportunity cost, since the funds could be remitted to the parent rather than invested in the foreign project.

Quiz 15: International Corporate Governance and Control

Which of the following is not a characteristic of a tax system that an MNC would consider when conducting a tax assessment of a country?

When evaluating international project cash flows, which of the following factors is relevant?

The discrepancy between the feasibility of a project in a host country from the perspective of the U.S. parent versus the subsidiary administering the project is likely to be greater for projects in countries where:

According to the text, in order to develop a distribution of possible net present values from international projects, a firm should use:

The impact of blocked funds on the net present value of a foreign project will be greater if interest rates are ____ in the host country and there are ____ investment opportunities in the host country.​

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

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 ____.

____ is not a method of incorporating an adjustment for risk into the capital budgeting analysis.​

If the parent's government imposes a ____ tax rate on funds remitted from a foreign subsidiary, a project is less likely to be feasible from the ____ point of view.

Assume an MNC establishes a subsidiary in a country where it has no other existing business. The present value of parent cash flows from this subsidiary is more sensitive to exchange rate movements when:​

A firm considers an exporting project and will invoice the exports in dollars. Estimating the expected cash flows in dollars would be more difficult if the currency of the foreign country is:

As the financing of a foreign project by the parent ____ relative to the financing provided by the subsidiary, the parent's exchange rate exposure ____.

____ can cause the parent's after-tax cash flows to differ from the subsidiary's after-tax cash flows.​

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:

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 ____.​

Everything else being equal, the ____ the depreciation expense is in a given year, the ____ a foreign project's NPV will be.

The required rate of return of a project is ____ the MNC's cost of capital.

If a foreign project is financed with a subsidiary's retained earnings, the subsidiary's investment could be viewed as an opportunity cost, since the funds could be remitted to the parent rather than invested in the foreign project.

The impact of blocked funds on the net present value of a foreign project will be greater if interest rates are in the host country and there are investment opportunities in the host country.

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

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 .

____ is not a method of incorporating an adjustment for risk into the capital budgeting analysis.

If the parent's government imposes a tax rate on funds remitted from a foreign subsidiary, a project is less likely to be feasible from the point of view.

Assume an MNC establishes a subsidiary in a country where it has no other existing business. The present value of parent cash flows from this subsidiary is more sensitive to exchange rate movements when:

As the financing of a foreign project by the parent relative to the financing provided by the subsidiary, the parent's exchange rate exposure .

____ can cause the parent's after-tax cash flows to differ from the subsidiary's after-tax cash flows.

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 .

Everything else being equal, the the depreciation expense is in a given year, the a foreign project's NPV will be.