Question 1

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

A high tax rate on funds remitted from a foreign subsidiary would make it less profitable for the parent company to invest in the subsidiary. Therefore, the project would be less likely to be feasible from the parent's point of view, which is the perspective being considered in this question.

Question 2

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 lower taxes and higher cash flows, which increases the NPV of a project.

Question 3

Because before-tax cash flows are necessary for an adequate capital budgeting analysis, international tax effects need not be determined for a proposed foreign project.

Accepted Answer

The statement is false. International tax effects need to be determined and considered in capital budgeting analysis for a proposed foreign project. This is because tax laws and regulations vary across countries and can significantly impact the cash flows and profitability of a project. Therefore, before-tax cash flows alone may not provide an accurate picture of the project's returns, and after-tax cash flows with international tax effects should be analyzed to make informed investment decisions.

Question 4

Like income tax treaties, ____ help to avoid double taxation and stimulate direct foreign investment.

Accepted Answer

Tax credits help to avoid double taxation and stimulate direct foreign investment by allowing taxpayers to offset the taxes they've paid abroad against their domestic tax liabilities.

Question 5

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

Accepted Answer

The answer of Which of the following is not a...

Question 6

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 ____ its estimate of the previously computed net present value.

Accepted Answer

If the dinar is expected to depreciate substantially, then the MNC's future cash flows from its subsidiary in Algeria will be worth less in present value terms. This would lower the previously computed net present value of the subsidiary. The other answer options are not accurate, as offsetting investments or reduced investment would still result in a lower net present value due to the expected depreciation of the dinar.

Question 7

A foreign project generates a negative cash flow in Year 1 and positive cash flows in Years 2 through 5. The NPV for this project will be higher if the foreign currency ____ in Year 1 and ____ in Years 2 through 5.

Accepted Answer

If the foreign currency depreciates in Year 1, then the negative cash flow will be worth more in terms of the investor's home currency. If the foreign currency then appreciates in Years 2 through 5, the positive cash flows will be worth more in terms of the investor's home currency. This will result in a higher NPV than if the currency had appreciated in Year 1 and depreciated in Years 2 through 5.

Question 8

Exhibit 14-1
Assume that Baps Corp. is considering the establishment of a subsidiary in Norway. The initial investment required by the parent is $5 million. If the project is undertaken, Baps would terminate the project aFter four years. Baps's cost of capital is 13 percent, and the project has the same risk as Baps's existing projects. All cash flows generated from the project will be remitted to the parent at the end of each year. Listed below are the estimated cash flows the Norwegian subsidiary will generate over the project's lifetime in Norwegian kroner (NOK):
 
-Refer to Exhibit 14-1. What is the net present value of the Norwegian project?

Accepted Answer

To calculate the NPV, we need to first convert the cash flows from NOK to USD using the exchange rate given (1 NOK = 0.155 USD). Then we discount the cash flows back to their present value using Baps Corp's cost of capital of 13%.

Using these calculations, we get the following NPV:

Year 1: (500,000 * 0.155) / (1+0.13)^1 = $58,408.48

Year 2: (1,500,000 * 0.155) / (1+0.13)^2 = $194,616.90

Year 3: (2,500,000 * 0.155) / (1+0.13)^3 = $265,031.25

Year 4: (3,500,000 * 0.155) / (1+0.13)^4 = $306,772.75

Total NPV = -$803,848.18

Based on this calculation, the best choice is (C) because it represents the correct NPV value for the project.

Question 9

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 be greater than, less than, or the same as the MNC's cost of capital, depending on the specific project's risk and expected returns.

Question 10

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

In this situation, both the parent and the subsidiary have a stake in the foreign project, and thus the project should aim to enhance the value of both entities. Therefore, neither the parent's nor the subsidiary's perspective should be favored over the other. A decision that benefits both parties should be made.

Question 11

If a subsidiary project is assessed from the subsidiary's perspective, then an expected appreciation in the foreign currency will affect the feasibility of the project ____.

Accepted Answer

The answer of If a subsidiary project is assessed from...

Question 12

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 determinant of a project's profitability, therefore, an increase in consumer demand has a positive impact on the project's NPV. On the other hand, the salvage value of a project represents the expected cash inflows from any leftover assets at the end of the project's life. A higher salvage value increases the project's total cash inflows, which in turn increases the project's NPV. Therefore, the NPV of an international project is positively related to consumer demand and positively related to the project's salvage value when all other factors are constant.

Question 13

A foreign project in Hungary and another in Japan had the same perceived value from the U.S. parent's perspective. Then, the exchange rate expectations were revised, upward for the value of the Hungarian forint and downward for the Japanese yen. The break-even salvage value for the project in Japan would now be ____ from the parent's perspective.

Accepted Answer

The answer of A foreign project in Hungary and another...

Question 14

Exhibit 14-1
Assume that Baps Corp. is considering the establishment of a subsidiary in Norway. The initial investment required by the parent is $5 million. If the project is undertaken, Baps would terminate the project aFter four years. Baps's cost of capital is 13 percent, and the project has the same risk as Baps's existing projects. All cash flows generated from the project will be remitted to the parent at the end of each year. Listed below are the estimated cash flows the Norwegian subsidiary will generate over the project's lifetime in Norwegian kroner (NOK):
 
-Refer to Exhibit 14-1. Assume that NOK8,000,000 of the cash flow in Year 4 represents the salvage value. Baps is not completely certain that the salvage value will be this amount and wishes to determine the break-even salvage value, which is $____.

Accepted Answer

The break-even salvage value is the amount that makes the net present value (NPV) of the project equal to zero. Without specific details on the discount rate, initial investment, and cash flows for the other years, it's impossible to calculate the exact break-even salvage value from the information provided.

Question 15

Holding other factors constant, an international project's NPV is ____ related to the size of the initial investment and ____ related to the project's required rate of return.

Accepted Answer

The answer of Holding other factors constant, an international project's...

Question 16

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. 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 net present value (NPV) is calculated by converting the future cash flows from Australian dollars to US dollars using the forecasted spot rates, discounting them at the cost of capital, and subtracting the initial investment. The NPV is negative, indicating a loss.

Question 17

Which of the following is not a factor that should be considered in multinational capital budgeting?​

Accepted Answer

The answer of Which of the following is not a...

Question 18

The ____ is (are) likely the major source of funds to support a particular project.

Accepted Answer

Initial investment refers to the money that is put into a project at the beginning to get it started. This is likely the major source of funds as it provides the base capital for the project. Variable costs and fixed costs are ongoing expenses associated with the project and are not the source of funds for the project.

Question 19

When conducting a capital budgeting analysis and attempting to account for effects of exchange rate movements for a foreign project, inflation ____ included explicitly in the cash flow analysis, and debt payments by the subsidiary ____ included explicitly in the cash flow analysis.

Accepted Answer

Inflation should be included in the cash flow analysis to accurately reflect the changing value of money over time and its impact on project costs and revenues. Debt payments by the subsidiary should also be included to accurately reflect the cash outflows associated with the project's financing.

Question 20

Exhibit 14-1
Assume that Baps Corp. is considering the establishment of a subsidiary in Norway. The initial investment required by the parent is $5 million. If the project is undertaken, Baps would terminate the project aFter four years. Baps's cost of capital is 13 percent, and the project has the same risk as Baps's existing projects. All cash flows generated from the project will be remitted to the parent at the end of each year. Listed below are the estimated cash flows the Norwegian subsidiary will generate over the project's lifetime in Norwegian kroner (NOK):
 
-Refer to Exhibit 14-1. Baps is also uncertain regarding the cost of capital. Recently, Norway has experienced some political turmoil. What is the net present value (NPV) of this project if a 16 percent cost of capital is used instead of 13 percent?

Accepted Answer

The answer of Exhibit 14-1
Assume that Baps Corp. is considering...

Quiz 14: Multinational Capital Budgeting

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.

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

Because before-tax cash flows are necessary for an adequate capital budgeting analysis, international tax effects need not be determined for a proposed foreign project.

Like income tax treaties, ____ help to avoid double taxation and stimulate direct foreign investment.

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

A foreign project generates a negative cash flow in Year 1 and positive cash flows in Years 2 through 5. The NPV for this project will be higher if the foreign currency in Year 1 and in Years 2 through 5.

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

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:

If a subsidiary project is assessed from the subsidiary's perspective, then an expected appreciation in the foreign currency will affect the feasibility of the project ____.

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

Holding other factors constant, an international project's NPV is related to the size of the initial investment and related to the project's required rate of return.

Which of the following is not a factor that should be considered in multinational capital budgeting?

The ____ is (are) likely the major source of funds to support a particular project.

When conducting a capital budgeting analysis and attempting to account for effects of exchange rate movements for a foreign project, inflation included explicitly in the cash flow analysis, and debt payments by the subsidiary included explicitly in the cash flow analysis.

Quiz 14: Multinational Capital Budgeting

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.

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

Because before-tax cash flows are necessary for an adequate capital budgeting analysis, international tax effects need not be determined for a proposed foreign project.

Like income tax treaties, ____ help to avoid double taxation and stimulate direct foreign investment.

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

A foreign project generates a negative cash flow in Year 1 and positive cash flows in Years 2 through 5. The NPV for this project will be higher if the foreign currency ____ in Year 1 and ____ in Years 2 through 5.

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

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:​

If a subsidiary project is assessed from the subsidiary's perspective, then an expected appreciation in the foreign currency will affect the feasibility of the project ____.

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

Holding other factors constant, an international project's NPV is ____ related to the size of the initial investment and ____ related to the project's required rate of return.

Which of the following is not a factor that should be considered in multinational capital budgeting?​

The ____ is (are) likely the major source of funds to support a particular project.

When conducting a capital budgeting analysis and attempting to account for effects of exchange rate movements for a foreign project, inflation ____ included explicitly in the cash flow analysis, and debt payments by the subsidiary ____ included explicitly in the cash flow 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.

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

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

A foreign project generates a negative cash flow in Year 1 and positive cash flows in Years 2 through 5. The NPV for this project will be higher if the foreign currency in Year 1 and in Years 2 through 5.

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:

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

Holding other factors constant, an international project's NPV is related to the size of the initial investment and related to the project's required rate of return.

Which of the following is not a factor that should be considered in multinational capital budgeting?

When conducting a capital budgeting analysis and attempting to account for effects of exchange rate movements for a foreign project, inflation included explicitly in the cash flow analysis, and debt payments by the subsidiary included explicitly in the cash flow analysis.