Suppose you start with 100 and buy stock for £50 when the exchange rate is £1 = 2. One year later, the stock rises to £60. You are happy with your 20 percent return on the stock, but when you sell the stock and exchange your £60 for dollars, you only get 45 since the pound has fallen to £1 = 0.75. This loss of value is an example of a. Exchange Rate Risk b. Political Risk c. Market imperfections d. Weakness in the dollar 2. The fundamental goal of sound business management is a. Shareholder wealth maximization b. Market share maximization c. Globalization d. Increasing the size of the firm 3. With regard to the financial structure of foreign subsidiaries a. It may be best to conform to the parent firm’s debttoequity ratio b. It may be best to conform to the local norm of the country where the subsidiary operates. c. It may be advantageous to vary judiciously to capitalize on opportunities to lower taxes, reduce financing costs and risk, and take advantage fo various market imperfections d. All of the above may be correct. 4. When a parent company is willing to let its subsidiary default, a. Creditors and potential creditors will examine the subsidiary’s financial structure closely to assess default risk. b. Potential creditors will still look to the parent company’s capital structure as it is still legally and morally responsible for its subsidiary’s debts. c. It is incumbent upon the subsidiary to take on as much debt as possible, pay a dividend to the parent and then default. d. None of the above. 5. The cost of capital a. Is defined as K = (1 – λ)Kl + λ(1 – t)i b. Is the minimum rate of return an investment project must generate in order to pay its financing costs. c. Is an accounting number reflecting historical costs. d. Is an accounting number reflecting historical costs. None of the above 6. Companies can benefit from crossborder listing of stocks in what ways? a. The company can expand its potential investor base, which will lead to a higher stock price and a lower cost of capital. b. Crosslisting can enhance the liquidity of the company’s stock. c. Cross listing may improve the company’s corporate governance and transparency. d. All of the above
Trang 11 Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2 One year later, the stock rises to £60 You are happy with your 20 percent return on the stock, but when you sell the stock and exchange your £60 for dollars, you only get $45 since the pound has fallen to £1 = $0.75 This loss of value is an example of
a Exchange Rate Risk
b Political Risk
c Market imperfections
d Weakness in the dollar
2 The fundamental goal of sound business management is
a Shareholder wealth maximization
b Market share maximization
c Globalization
d Increasing the size of the firm
3 With regard to the financial structure of foreign subsidiaries
a It may be best to conform to the parent firm’s debt-to-equity ratio
b It may be best to conform to the local norm of the country where the subsidiary operates
c It may be advantageous to vary judiciously to capitalize on opportunities to lower taxes, reduce financing costs and risk, and take advantage fo various market imperfections
d All of the above may be correct
4 When a parent company is willing to let its subsidiary default,
a Creditors and potential creditors will examine the subsidiary’s financial structure closely to assess default risk
b Potential creditors will still look to the parent company’s capital structure as it is still legally and morally responsible for its subsidiary’s debts
c It is incumbent upon the subsidiary to take on as much debt as possible, pay a dividend to the parent and then default
d None of the above
5 The cost of capital
Trang 2a Is defined as K = (1 – λ)Kl + λ(1 – t)i
b Is the minimum rate of return an investment project must generate in order to pay its financing costs
c Is an accounting number reflecting historical costs
d Is an accounting number reflecting historical costs None of the above
6 Companies can benefit from cross-border listing of stocks in what ways?
a The company can expand its potential investor base, which will lead to a higher stock price and a lower cost of capital
b Cross-listing can enhance the liquidity of the company’s stock
c Cross listing may improve the company’s corporate governance and transparency
d All of the above
7 A firm that can reduce its cost of capital
a Has an arbitrage opportunity
b Can identify more projects that generate returns exceeding the cost of capital and thereby increase the firm’s value
c Will lower its overall risk
d None of the above
8 If international financial markets are fully integrated rather than segmented
a Investors would require, on average, lower expected returns on securities
b Investors would require, on average, higher expected returns on securities
c Investors would require, the same expected returns on securities
d None of the above
9 If international financial markets are less than fully integrated, then
a Any differences in the cost of capital across countries can be diversified away
b Systematic differences in the cost of capital may exist across different countries
c Any difference in the cost of capital that may exist across different countries is due to differences in unsystematic risk
Trang 3d None of the above
10 A consideration of political risk
a Generally favors local financing over the parent’s direct financing
b Generally favors external debt over equity financing
c a) and b) are both true
d None of the above
11 When Nestlé announced that it would lift restrictions on foreign ownership of its registered shares
a The price of registered shares rose
b The price of registered shares fell
c The two classes of shares began a pricing to market phenomenon after the announcement
d Both a) and c) are correct
12 When Nestlé announced that it would lift restrictions on foreign ownership of its registered shares
a While the price of registered shares rose, the price of bearer shares fell As a result, the total market value of the company remained unchanged
b The total market value of the firm increased
c Nestlé’s cost of capital increased
d None of the above
13 If a country were to offer your firm a concessionary loan
a The value of this loan could be estimated explicitly as a component of the APV
b The firm would simply adjust the discount rate downward
c The firm would ignore the cash flow implications of this since it is a financing decision
d All of the above may be correct
Trang 414 Suppose that domestic inflation is 3%; inflation in € is 6% and the spot exchange rate is €1 =
$2 What is your estimate of the exchange rate expected to prevail in 3 years?
a €1 = $2.1855
b €1 = $2.00
c €1 = $1.8349
d €1 = $1.9434
e None of the above
15 Your firm has a project that will produce cash flows of CDATA[€>500,000 per year for five years The foreign government will only allow repatriation of €>250,000 per year Which cash flow should you use in estimating the APV?
a €>500,000
b €>250,000
c Both
d None of the above
16 Your U.S.-based firm is considering a capital budgeting project in Japan Suppose that the spot exchange rate for Japanese yen is ¥122/$ and that the one year forward exchange rate for Japanese yen is ¥130/$ The discount rate is 5% in the U.S What's the discount rate that should
be used in Japan on yen-denominated cash flows?
a 11.89%
b 6.56%
c 3.28%
d 1.67%
e None of the above
17 If a project has a timing option associated with it
a This should add value to the project
b This can add value but only if the option is exercised
c The option could subtract value from the project in the right circumstances
Trang 5d None of the above
18 In the APV model,
a Each cash flow is discounted at the discount rate appropriate with the risk associated with that cash flow
b Cash flows are calculated with that cash flow
c The cash flow from operations is used, not the amount that is available for remittance
d All of the above
19 When thinking about a project,
a If it is possible to finance the project entirely with debt, the project will have a higher APV than if all equity financed, since the return on debt is lower than the return on equity
b It is never appropriate to think of the project as being financed separately from the way the firm is financed
c Depreciation should always be ignored since it is a non cash item
d None of the above
20 Consider a project to invest abroad, the size and timing of the after-tax incremental cash flows are shown in the following table:
Trang 6d None of the above
22 The Schadenfreude Corporation has an optimal debt ratio of 50 percent Its cost of equity capital is 12 percent and its pre-tax borrowing rate is 8 percent Given a marginal tax rate of 34 percent, calculate the weighted average cost of capital
a 10 percent
b 6.6 percent
c 8.64 percent
d None of the above
23 Not all countries allow MNCs the freedom to net payments,
a The U.S., Canada, and Great Britain allow only netting between each other
b Some countries require the MNC to ask permission, and some countries limit netting
c But that is fine, since netting typically has costs that outweigh the benefits for a MNC
d All of the above may be correct
24 The higher the transfer price
a The higher the net profit reported by the MNC
b The higher the gross profit of the receiving division relative to the transferring division
c The higher the gross profit of the transferring division relative to the receiving division
Trang 7d None of the above
25 Your firm has a subsidiary in a foreign country which has placed restrictions on its own currency, limiting its conversion into other currencies What is up with that?
a The MNC should shut down operations in protest
b This is known as blocked funds
c This will not affect the MNC since the accounting numbers in the consolidated financial statements will not change
d None of the above
26 Affiliate A sells 1,000 units to Affiliate B per year The marginal income tax rate for Affiliate
A is 20 percent and the marginal income tax rate for Affiliate B is 50 percent The transfer price can be set at any level between $100 and $200 Which transfer price between A and B should the parent select
a $200
b $100
c $150
d It does not matter
27 Which will reduce the number of foreign exchange transaction the most for a MNC?
a Multilateral netting
b Bilateral netting
c Fish netting
d None of the above
28 Under multilateral netting
a Each affiliate nets all its inter-affiliate receipts against all its disbursements It then transfers or receives the balance, respectively, if it is the net payer or receiver
b Each pair of affiliates determines the net amount due between them, and only the net amount is transferred
Trang 8c No inter-affiliate payments are made or even computed, since no real cash flows are involved
d All of the above
29 Multinational cash management
a Is really no different for a MNC than for a purely domestic firm in a closed economy
b Concerns itself with the size of cash balances, their currency denominations, and where these cash balances are located among the MNC's affiliates
c Concerns itself with the size of cash balances and their currency denominations, but not where these cash balances are located among the MNC's affiliates, since intra-affiliate default risk is not an issue
d None of the above
30 One benefit of a centralized cash depository is
a The MNC's investment in precautionary cash balances can be substantially reduced without a reduction in its ability to cover unforeseen expenses
b Each affiliate will have greater autonomy in managing its own cash balances
c Exchange rate restrictions can be easily circumvented
d None of the above
31 To establish an arms length price of a tangible good,
a Use the resale price approach, where the price at which the good is resold by the distribution affiliate is reduced by an amount sufficient to cover overhead costs and a reasonable profit
b Use a comparable uncontrolled price between an unrelated buyer and seller
c Use the cost plus approach, where an appropriate profit is added to the cost of the manufacturing affiliate
d All of the above
32 If French-based Affiliate A owes U.S.-based affiliate B $1,000 and Affiliate B owes Affiliate
A €2,000 when the exchange rate is $1.10 = €1.00 The net payment between A and B should be
a €1,091 from B to A
Trang 9b €1,091 from A to B
c $1,200 from B to A
d None of the above
33 The underlying principal of tax equity
a Is that similarly situated taxpayers should participate in the cost of operating the government according to the same rules
b Has been adopted worldwide, under U.N charter
c Means that taxes should be fair, a consistent percentage of income regardless of where it is earned
d All of the above may be correct
34 Tax neutrality is determined by which of the following criteria?
a National neutrality
b Capital import neutrality
c Capital export neutrality
d All of the above
35 A value added tax
a Is preferred in place of a personal income tax by many economists because income taxes are a disincentive to work, whereas a VAT discourages unnecessary consumption
b Is also known as a ad valorem tax
c In an indirect national tax levied on the value added in the production of a good (or service) as it moves through the various stages of production
d All of the above
36 When the income tax rate in the host country is greater than the tax rate in the parent country,
a It is beneficial to follow a high markup policy on transferred goods and services from the parent to a foreign affiliate
Trang 10b It is beneficial to follow a low markup policy on transferred goods and services from the parent to a foreign affiliate
c Transfer pricing will not affect the total tax liability, net of foreign tax credit offsets
d None of the above
c Any country with a higher tax rate that available domestically
d None of the above
38 There are three production stages required before a bicycle produced by Masi Bicicletia S.A can be sold at retail for €3,500 The VAT rate is 15% Find the total tax liability due
Production stage Production stage Value Added Incremental VAT
d None of the above
39 If U.S taxing authorities did not limit the amount of the foreign tax credit to the equivalent amount of the U.S tax
Trang 11a U.S taxpayers would end up subsidizing part of the tax liabilities of U.S MNC's foreign earned income
b National neutrality would suffer
c U.S MNCs would all depart our shores
d all of the above
40 Active income
a Income that results from production by the firm or individual (of goods or services)
b Is income earned by athletes
c Includes dividend and interest income, since the tax court has ruled that taking risk is a form of work
d None of the above
41 The current U.S marginal tax rate for domestic nonfinancial corporations is 35 percent
a This is positioned pretty well in the middle of the rates assessed by the majority of countries, as reported in the PriceWaterhousCoopers annual Corporate Taxes: Worldwide summaries
b This is considerably higher than that of most of our trading partners
c But this is reduced on a dollar-for-dollar basis for any and all taxes paid to foreign governments, so this is an upper limit for the tax rate faced by U.S MNCs
d All of the above
c Is a form of double taxation
d None of the above
Trang 1243 Cash flow analysis, as part of the capital budgeting process, requires:
a A firm to conceptualize a project and forecast future cash flow from the project
b Areview of the firm's recent cash flow to determine if it will support projects under consideration
c Analysis of cash flow in the industry to determine if a firm is competitive
d That foreign cash flow be converted into the home currency of the firm
44 In the capital budgeting process in many MNCs, importance is place on making decisions on project proposals:
a By outside consultants who have special expertise in the particular project under consideration
b At upper levels of management since upper management is ultimately responsible for the profitability of the firm
c At lower levels within the organization so that more costly upper level managerial time will not be expended
d By involving the entire organization so that all levels of the organization will claim ownership of a project
45 MNCs may elect to pursue a project that uses foreign labor on the basis that the foreign labor costs less than domestic labor, but another reason for using foreign labor is that it:
a Offers technical capabilities that cannot be found domestically
b Is more productive
c Is not subject to the same restrictions as is domestic labor
d Is more plentiful
46 What is a political hedge?
a Foreign firms doing business in a country are sometimes subject to regulations that
do not apply to domestic firms, so foreign firms can employee government officials
in countries to see that the firm is exempted from such regulations on foreign firms
b Foreign firms doing business in a country are well-advised to employ locals to lobby the government of the country where the firm is doing business to provide local subsidies for the foreign firm so that the foreign firm will invest in that country
Trang 13c Since countries can impose regulations on foreign firms doing business in the country, a firm can actually invest in a country so that it is not simply a foreign firm selling in the country and potential avoid many of those regulations that apply to foreign firms
d Political hedge is a politically correct way of referring to bribery of local officials
47 How does off shoring differ from a firm producing in another country?
a Off shoring and foreign production are essentially the same
b Off shoring is a more comprehensive activity than foreign production
c If a firm produces in another country, it owns production assets in that country to some degree, but off shoring indicates that the firm contracts with a firm in another country for certain production
d Foreign production means producing something ion a foreign country for sale in that country, while off shoring means that a product is being produced in a foreign country and will be shipped back to the home country of the firm responsible for the off shoring
48 The easiest way for a firm to sell internationally is to:
a Produce its product in another country
b Form a joint venture with another firm in the country where it wants to sell its products
c Export its products to another country
d Establish sales offices in countries where it wants to sell its products
49 In forecasting sales revenue, a firm must determine:
a Production capacity and the ability to expand production capacity to meet increased demand
b Demand for the product and the price that it will charge for the product
c Existing supply of the product and expanded changes in supply of the product
d Impact of government regulations on the production of the product
50 In a NPV calculation, the initial cash flow is:
Trang 14a The capital investment that is necessary for the project and represents a positive cash flow
b The salvage value of the project and represents a negative cash flow
c The initial return from the project and represents a positive cash flow
d The capital investment that is necessary for the project and represents a negative cash flow
51 Since firms seek to increase shareholder wealth, which projects should firms accept?
a Firms should accept all projects without regard to their NPV
b Firms should accept projects with NPV>0
c Firms should accept projects with NPV<0
d Forms should accept projects with NPV>1
52 What is the difference between a foreign branch of an MNC and a foreign subsidiary of an MNC?
a A foreign branch of an MNC is an office of the MNC which is not a separate organization from the MNC, but a foreign subsidiary is a separate organization in
a foreign country that is owned by the MNC
b A foreign branch of an MNC is a separate entity in a foreign country which the MNC owns, while a foreign subsidiary is an office of the MNC but not a separate entity from the MNC
c A foreign branch of an MNC and a foreign subsidiary of an MNC are essentially the same
d A foreign branch of an MNC is an office of the MNC which is not a separate organization from the MNC, and a foreign subsidiary is an organization in a foreign country in which the MNC owns only a partial interest
53 What is parent-subsidiary asymmetry in the context of capital budgeting?
a When the profits of the subsidiary are not fully paid to the parent, there is subsidiary asymmetry
parent-b When the analysis of a project at the parent and at the subsidiary level yields dissimilar estimates of NPV, there is parent-subsidiary asymmetry
Trang 15c When a parent and a subsidiary cannot agree on whether to pursue a specific project, there is parent-subsidiary asymmetry
d When a parent wants the profits of a subsidiary repatriated to the parent but the subsidiary resists paying its profits to the parent, there is parent-subsidiary asymmetry
54 MNCs may be subject to as many as three taxes on the income of their subsidiaries, including:
a Host-country income taxes on the subsidiary's income, host-country withholding taxes on dividends paid to the MNC, and home-country taxes on the dividends received by the MNC
b Host-country income sales taxes on the subsidiary's sales, host-country income taxes on the subsidiary's income, and home-country income taxes on the MNC's income
c Host-country income taxes on the subsidiary's income, host-country withholding taxes on dividends paid to the MNC, and home-country income taxes on the subsidiary's income
d Host-country sales taxes on the subsidiary's sales, host-country withholding taxes
on dividends paid to the MNC, and home-country taxes on the dividends received
by the MNC
55 The effect of remittance restrictions on a parent's cash flow is that:
a The total cash flow of the parent will remain unchanged, but the value of that cash flow will decrease because the receipt of the funds by the parent will be delayed
b The total cash flow of the parent will be reduced, and the value of that cash flow will be further decreased because the receipt of the funds by the parent will be delayed
c The parent's cash flow will not be affected because the cash flow will only be delayed, not reduced
d The total cash flow of the parent will be reduced, but the delay in the receipt of the funds by the parent will not affect the value of those funds to the parent
56 The issues involved in parent-subsidiary asymmetry can usually be resolved by:
a Calculating cash flow from the perspective of the subsidiary
Trang 16b Averaging the cash flow calculation of the subsidiary and the cash flow calculations of the parent
c Being conservative and using the cash flow calculation which provides the lowest amount of cash flow
d Calculating cash flow from the perspective of the parent
57 When a subsidiary is restricted from remitting its profits to the parent, the restricted cash flow is usually:
a Invested in Eurobonds to increase yields while the funds are restricted
b Deposited in local banks at local interest rates
c Spent locally by the subsidiary
d Lost to the parent permanently
58 If there are efficient markets and no cross-border constraints on the flow of capital, project financing:
a Will be difficult because the lack of restrictions makes lending risky
b Will not be affected by where that financing is obtained
c Can only be obtained by the parent and not by the subsidiary
d Can only be obtained by the subsidiary and not by the parent
59 In evaluating the values associated with cash flow of the parent and the subsidiary, what are financial "side effects"?
a Side effects are the components of cash value that may differ between the parent and the subsidiary such as blocked currency, additional taxes and local financing subsidies
b Side effects are the additional factors, beyond cash flow, that must be considered
in determining the value of a project
c Side effects are the effects that are felt by a parent when its subsidiary earns more income than the parent
d Side effects are effects of the non-financial issues that exist between parent and subsidiary that must be resolved before a project can proceed
60 In considering the value of a project, the NPV estimate for the parent equals the:
Trang 17a Foreign cash flow from the project discounted at the parent's discount rate
b Foreign cash flow from the project discounted at the appropriate foreign discount rate
c Domestic cash flow discounted at the foreign discount rate
d Domestic cash flow discounted at the domestic discount rate
61 Even if estimated NPV for a proposed project for the parent is different from estimated NPV for the subsidiary, a project that shows should probably be pursued
a NPV<0 for the parent and NPV<0 for the subsidiary
b NPV>0 for the parent and NPV<0 for the subsidiary
c NPV<0 for the parent and NPV>0 for the subsidiary
d NPV>0 for the parent and NPV>0 for the subsidiary
62 mean that a project's parameters can be changed after the decision to pursue the project has been made
a Flexible parameters
b Indefinite goals
c Real options
d Delayed decisions
63 Working capital management is essentially concerned with:
a Short-and long-term financing
b Managing receivables
c Current assets and current liabilities
d Managing payables
64 Traditional cash management analysis considers:
a The cost of short-term financing and the interest rate on investments
b The benefit of having cash versus the opportunity cost of holding cash
c Currency risk and interest rate risk
Trang 18d The inflation rate and the opportunity cost of holding cash
65 Improved financial system communications abilities have:
a Increased the amount that firms pay to transfer funds between accounts because improved communications has increased the number of transfers that mncs make
b Not affected MNC bank transactions
c Reduced the importance of considering transaction costs when determining the cash balance that an MNC should have
d Encouraged mncs to depend more on short-term financing and less on holding cash balances
66 How does currency risk arise with respect to cash balances that an MNC holds in foreign funds in a bank in a developing nation?
a Cash balances held by an MNC in a bank in a developing nation may be subject to expropriation by the government of that developing nation, so that the MNC is deprived of those funds
b When an MNC deposits funds in a foreign bank account, it transfers those funds from a bank account in another country, and, since the funds must be converted into the currency of the country where the bank is located, the MNC risks incurring a loss on that conversion
c Withdrawal of funds in foreign banks accounts and conversion of those funds into the home currency of the MNC may be restricted in developing nations, so that the MNC may not have immediate access to those funds and the value of those funds may decline before the MNC can recover the funds
d Typically, the interest rate paid on funds deposited in foreign bank accounts is below the market rate, so the funds deposited in foreign bank accounts earn below-market returns
67 In most short-term investments, there is a trade-off between:
a Rate of return and liquidity
b Risk and opportunity cost
c Liquidity and flexibility
d Rate of return and opportunity cost
Trang 1968 What are the benefits of commercial paper to investors?
a Commercial paper is as safe as T-bills and offers long maturities
b Commercial paper is issued by firms with a wide range of credit ratings, so a wide range of interest rates are available
c Commercial paper is underwritten by investment banks, so there is an active secondary market in commercial paper
d Commercial paper is riskier than T-bills so they pay a higher interest rate, and they offer liquidity
69 When assets are securitized, what is done with the cash flow that results from those assets?
a Cash flow from securitized assets is used to pay the original owner of those assets for the sale of the assets
b There is no cash flow from securitized assets
c Cash flow from securitized assets is used to pay the commissions of the financial institution that arranged for the securitization
d Cash flow from securitized assets is used to pay principle and interest payments to the investors who have invested in the securitized assets
70 U.S commercial paper is issued on an uncommitted basis What potential problem does that present to MNCs issuing U.S commercial paper?
a U.S commercial paper is debt instruments issued by an MNC with no guarantee that the funds borrowed through the issue will be repaid
b U.S commercial paper is debt instruments issued by an MNC without any guarantee that all of the debt instruments will be purchased, so the issuing MNC does not know before the issue if the full amount of the money it needs will be raised
c U.S commercial paper is debt instruments issued in a variety of currencies, so the purchaser of the commercial paper does not know the currency risk that will be involved in the investment
d U.S commercial paper is debt instruments issued with floating interest rates, so the purchaser of the commercial paper does not know the interest rate at which their investment will be repaid
Trang 2071 What does it mean that firms should match maturities of their financing with the maturities of the assets acquired with the funds from financing?
a A firm should only borrow money to acquire assets that will be used by the firm for years after the loan for the assets is repaid
b A firm should not borrow money to acquire assets that will be used by a subsidiary of the firm that borrows the money
c A firm should arrange financing that allows the firm to repay the amount financed
at about the same time that the assets acquired through that financing are retired
d A firm should only borrow money to acquire assets which will produce income that can specifically be used to repay the loan
72 Which is more important in financial planning for an MNC, ex ante financing cost or ex post financing cost?
a Ex ante financing cost is more important since it is the projection of the financing cost
b Ex post financing cost is more important because it is the actual cost of financing
c Both are important in financial planning because they measure different costs
d Neither is important in financial planning because neither provide guidance in determining which financing is best for an MNC
73 If a country taxes the income of MNCs that is derived from activities within that country's territories, that country takes a _ approach to taxation
a Nationalistic
b Territorial
c Parochial
d Cross-border
74 What approach to taxation has the United States adopted?
a The cross-border approach
b The modified multi-national approach
c The world-wide approach
Trang 21d The territorial approach
75 MNCs can expect to pay two categories of income taxes:
a Income taxes in any country where they receive income and income taxes in any country Where they purchase materials
b Income taxes on present income and income taxes on expected income
c Domestic income taxes in the country where they are organized and foreign income taxes in other countries where they conduct business operations
d Income taxes in countries where income is earned and income taxes in countries from which they withdraw funds
76 What is the effect on an MNC of withholding taxes imposed on a foreign subsidiary?
a The withholding tax reduces the after-tax amount received by the MNC
b The withholding tax does not affect the MNC since it is the obligation of the subsidiary
c The withholding tax always increases the overall tax burden on the combined MNC-subsidiary enterprise
d The withholding tax always decreases the overall tax burden on the subsidiary enterprise because of tax credits that are allowed for the withholding tax paid
MNC-77 Identification of for each step in the value chain is key to the VAT calculation
a Beginning and ending values
b The costs incurred
c The cost of labor incurred
d The cost of materials incurred
78 If an MNC has foreign tax credits, how is its domestic income tax determined?
a Foreign tax credits only affect the MNC's foreign income tax, so the MNC's domestic income tax is not affected
Trang 22b Foreign tax credits are deducted from the foreign income tax owed, and then the reduced foreign income tax is combined with the MNC's domestic income tax, and that amount is paid by the MNC
c The MNC determines its tentative domestic income tax and then deducts its allowable foreign tax credits
d The MNC's domestic income tax is reduced by the applicable percentage of foreign income tax paid
79.In what situation might an MNC have an excess amount of foreign tax credits?
a If the income tax rate in a foreign country is higher than the tax rate in the home country of the MNC, the MNC would pay more foreign income tax than it would domestic income tax, in which case, the foreign tax credit would exceed the domestic tax due
b If the income tax rate in a foreign country is lower than the tax rate in the home country, the MNC would pay more domestic income tax than it would foreign income tax, so that the MNC would have domestic income tax in excess of the foreign income tax
c If the foreign subsidiary of an MNC pays income taxes in more than one foreign country, the MNC will have excess foreign tax credits because the taxes paid in more than one foreign country cannot be used as credits against domestic income taxes
d If the foreign subsidiary of an MNC pays income taxes in the country where it operates and then remits some or all of its profits to the MNC, the withholding taxes on that remittance will not be included in the foreign tax credit that the MNC is entitled to claim
80 _ are the prices at which transactions between MNCs and their subsidiaries and affiliates take place
a Exchange prices
b Intercompany trade prices
c Catalogue prices
d Transfer prices
81 Firms can use transfer pricing to address important issue other than taxation, including:
a Diverting money to projects in new markets
Trang 23b Providing money for the repayment of investments
c Allowing foreign subsidiaries to shoe false profits
d Shifting money away from countries where political or economic risk is high
82 The royalties and fees that a subsidiary pays to its parent MNC are often:
a Excluded from the parent MNC's taxable income
b Disallowed by the IRS under Section 482 of the Internal Revenue Code
c Deductible expenses for the subsidiary and lower the subsidiary's taxable income
d Minimized so that the subsidiary can earn a profit and remit more profits to the MNC
83 In the Sharpe Index, the numerator represents the and the denominator represents the
a Risk; return
b Investment; return
c Return; risk
d Return; investment
84 If capital in a particular market is scarce:
a The forces of supply and demand will bring the cost of capital down
b High returns are possible because businesses will have to pay more for capital
c The risk associated with any investment increases
d High returns are possible only if domestic banks do not provide capital to the market
85 The key determinative of portfolio risk is:
a The correlation between assets
b The amount invested in long-term investments
c The maturity date of the investments
d The interest rates at which investments are earning returns
Trang 2486 What effect should an investor's nationality have on investment decisions?
a None
b Since an investor should know more about the investment climate in his or her home country, investment decisions should favor investments in the home country
c Investors should avoid investing in home-country assets to broaden their investment opportunities
d Investors should weight their investments to those that can take place in their home-country currency
87 The total risk in an investment is composed of:
a Currency risk, political risk, and economic risk
b Political risk, transaction risk, and translation risk
c Currency risk, asset risk, and covariance risk
d Covariance risk, default risk, and economic risk
88 What reasons may lead a country to prohibit foreign ownership of local assets?
a National pride and limiting foreign interests from acquiring domestic economic power
b Fear that investment losses will discourage further investment and national pride
c Desire to protect domestic industries from competition and desire to protect domestic technological superiority
d Desire to protect local citizens from foreign competition for investment opportunities and desire to protect domestic currency value from foreign interference
89 Lack of knowledge about foreign firms in which investments might be made leads to:
a Investments that will probably yield less return than expected
b A perceived lower level of risk because lack of knowledge of risks leads to the assumption that the risks do not exist
c A perceived higher level of risk because lack of information creates uncertainty
Trang 25d Larger investments based on the presumption that returns will be higher than the facts indicate
90 One of the key factors in corporate governance is the:
a Power of the board of directors of the corporation to make all decisions for the corporation without input or review from any other group
b Right of stockholders in the corporation to elect directors and vote on key issues affecting the corporation
c Power of government to regulate the activities of the corporation
d Obligation of the corporation to act ethically and to act as a good corporate citizen
91 A financial crisis that is global is scope suggests:
a A positive correlation between national stock markets world-wide
b That government regulation has failed on a broad basis
c That stock markets around the world are not coordinated
d That as many investors have suffered an increase in the value of their investments
as have suffered a decline in the value of their investments
92 A document issued by a financial institution and back by a specified shares of stock in a foreign firm that has essentially the same value as the shares of stock it represents is called a:
Trang 26e All of the above
94 NPV is not always used by managers because
a It is not intuitive
b Alternative measures such as the payback period are equally accurate
c Managers rarely think of NPV as incremental value for investors
d Both a and c
e All of the above
95 A project with a zero NPV
a Earns a competitive rate of return
b Is not worth undertaking
c Is a mediocre project
d Is just breaking even profit-wise
e None of the above
96 Managers who avoid discounted cash flow analysis tend to be
a Overconfident
b Less sophisticated, older and longer-tenure managers
c Managers of highly-levered firms
d Managers of firms with agency conflicts
e None of the above
97 Managers who do not base their decisions on NPV are prone to
a Over-confidence
b Excess optimism
c The representativeness bias
d Being averse to a sure loss
e Preference reversals
Trang 2798 Managers who continually ask themselves whether they would support or terminate a project
if they took it over for the first time today
a Are wasting time that could be better used in implementing the project
b Are undermining the decisions of their predecessors
c Are avoiding excessive reluctance to terminate failing projects
d Are second-guessing themselves
e None of the above
99 The difference between behavioral biases and agency conflicts is that
a Dealing with agency conflicts involves the alignment of incentives while behavioral biases need to be addressed by debiasing
b Behavioral biases actually arise from agency conflicts Without agency conflicts, there will be no behavioral biases
c Agency conflicts actually arise from behavioral biases By addressing behavioral biases, agency conflicts will automatically be eliminated
d There is no difference between the two They are alternative names for the same phenomenon
e None of the above
100 Managers are often reluctant to terminate losing projects because
a They are averse to sure losses
b The losing projects are highly visible
c They do not want to experience regret that they made a mistake with the project
d All of the above
e None of the above
101 Managers are excessively optimistic in projects where
a They believe they have a high degree of perceived control
b They believe that they are familiar with the situation at hand
c The outcome is much more desirable
Trang 28d The early stages of the project have been successful
e All of the above
102 Suppose that your firm is a U.S.-based importer of German automobile accessories You pay for them in euros and sell them in dollars You have just ordered next year's inventory In one year your firm owes a payment of €100,000 to your German supplier Today's spot exchange rate is €1.00 = $1.50; the one-year forward rate is €1.00 = $1.55 How can you fix the dollar cost
d Sell a call option on the euro with a one-year maturity
103 Suppose that your firm is a U.S.-based importer of German automobile accessories You pay for them in euros and sell them in dollars You have just ordered next year's inventory In one year your firm owes a payment of €100,000 to your German supplier Today's spot exchange rate is €1.00 = $1.50; the one-year rate of interest in the U.S is 4 percent and in Germany it is 6% What trades in the spot foreign exchange market and in the money market will allow you to fix the dollar cost of this order?
a Exchange $150,000 for €100,000 at today's spot rate In twelve months, pay your supplier
b Exchange $141,510 for €94,340 at the spot rate of €1.00 = $1.50 Invest the euros
at i€ = 6% In one year your investment will be worth €100,000 which is enough
to pay your supplier If you're short of cash today, borrow the $141,510 at i$ = 4 percent
c Sell euros forward at the exchange rate expected to prevail in one year
d None of the above are correct
104 Suppose that your firm is U.S.-based importer of German automobile accessories You pay for them in euros and sell them in dollars You have just ordered next year's inventory In one year your firm owes a payment of €100,000 to your German supplier Today's spot exchange rate
is €1.00 = $1.50; One-year call and put options are available on the euro with a variety of strike prices How can you place an upper limit on the dollar cost of this order?
Trang 29a Buy one-year put options on the euro
b Sell one-year put options on the euro
c Sell one-year call options on the euro
d Buy one-year call options on the euro
105 Suppose a U.S firm has just bought an asset from a Japanese firm for ¥500 million due in one year Calculate today's cost (i.e the present value) of meeting this obligation using a money market hedge The spot exchange rate for Japanese yen is ¥122/$ and the one year forward exchange rate for Japanese yen is ¥130/$ The one-year interest rate is 5% in the U.S The one-year interest rate in Japan is 12.00%
a $3,485,000
b $3,659,250
c $3,663,004
d $3,842,213
106 Explain the process of a money market hedge for a foreign currency obligation
a Estimate the size of your contractual foreign currency obligation in dollars using the forward interest rate
b Estimate the size of your foreign currency obligation Buy enough call options to meet this obligation At maturity, exercise the calls
c Estimate the size of your contractual foreign currency obligation Buy that much foreign currency at the spot rate, pay early
d Estimate the size and timing of your contractual foreign currency obligation Find the present value of the obligation using the foreign currency discount rate Buy the present value of the foreign currency obligation at the spot exchange rate Invest the proceeds at the foreign currency interest rate
107 Suppose a U.S firm has sold an airplane to a British firm for £20 million payable in one year The spot exchange rate is $2.00 = £1.00; the one-year forward exchange rate is $2.01 =
£1.00 The one-year interest rate in the U.S is 3 percent and the one-year interest rate in Great Britain is 2.50 percent Which of the following hedging strategies eliminates the exporter's exchange rate risk?
a Sell £20 million forward at $2.01 = £1.00
Trang 30b Since the forward rate is more than the spot rate, use a money market hedge instead of a forward market hedge
c Borrow £19,512,195.12 from a British lender Exchange for $39,024,390.24 at the spot exchange rate In one year, the £20 million receivable will service the loan
d Both a) and c) are correct
108 A recurring exposure could be best be hedged with
a Swaps
b Exposure netting
c Selling call options
d Buying call options
109 Today, it is not unusual for an exporter to let the importer choose the currency of payment
a This amounts to the exporter giving the importer a currency option
b The importer is essentially selling an option to the exporter
c This is an example of exposure netting
d This only works when neither party wishes to hedge
110 For an exporter selling in one foreign currency, if the domestic currency is strong or expected to become strong:
a The firm can hedge by selling their home currency forward
b The firm could hedge by buying foreign currency forward
c a) and b) are both correct
d The firm could hedge by buying their home currency forward
111 A firm that has an exposure to a minor currency,
a Can hedge to the exposure to an extent using cross-hedging techniques
b Can directly hedge at no more expense than with a major currency
c Should never hedge since this could cost too much
d b) and c) are both correct
Trang 31112 Political risk
a Is an example of a macro risk
b Arises from uncertainty regarding exchange rates
c Refers to the potential losses to the parent firm resulting from adverse political developments in the host country
d a) and c) are both correct
113 Other things equal, a country will be perceived to have more political risk
a The less integrated it is into the world system
b The more stable a country's government is
c The more stable its neighboring countries are
d With lessening income inequality
114 Country risk
a Is a narrower measure of risk than political risk
b Is a broader measure of risk than political risk
c Is unrelated to political risk
d None of the above
116 Consider a country where the bribery of officials is a normal part of doing business
a U.S MNC should adjust capital budgeting projects in that country by including the cost of the bribes
b U.S firms are legally able to bribe foreign officials, but are not able to deduct the costs
c U.S firms are legally prohibited from bribing foreign official by the Foreign Corrupt Practices Act
d None of the above
117 When a MNC builds brand-new production facilities overseas, this is an example of
a A cross-border M&A
b A greenfield investment
Trang 32c Foreign direct investment
d Both answers b) and c) are correct
118 Imperfect factor markets drive much FDI Which of the following markets has the most imperfections?
a Product market
b Labor market
c Capital market
d Market for raw materials
119 Other things equal, a firm with a greater investment in intangible assets
a Is more likely to establish foreign subsidiaries than to use licensing
b Is less likely to consider foreign direct investment
c Is less likely to establish foreign subsidiaries than licensing
d Is less profitable
120 When U.S car makers began to build their own network of dealerships in Japan, this was an example of:
a Forward vertical FDI
b Backward vertical FDI
c Horizontal FDI
d Both a) and c) are correct
121 Insurance for political risk exists How would you incorporate the cost of the insurance premium into the capital budgeting process?
a Subtract the insurance premium from the expected cash flows for the project when computing its NPV
b Raise the cost of capital (discount rate)
c Adjust the NPV downward by a subjective amount
d None of the above
122 Capital budgeting is done with
Trang 33a ANPV analysis
b the WACC method
c the FTE method
d all of the above
123 In the first step of deriving the ANPV of a project
a Benefits or costs associated with how the project is financed must be considered
b The amount of debt issued to finance the project is not a concern
c It is crucial to consider the effect of the project on the firm’s eventual capital structure
d The debt-equity ratio that will be in place after the project is up and running must
be forecast
124 When calculating the NPV of a project’s cash flows, how must the revenues and costs be measured?
a On an incremental, pre-tax, cash flow basis
b On an annual, pre-tax, cash flow basis
c On an incremental, after-tax, cash flow basis
d On an annual, after-tax, cash flow basis
125 All of the following are true regarding financial slack, EXCEPT
a It can reduce managers’ incentives to find ways to make the company operate more cost-effectively
b It develops when a company chooses not to pay out dividends from its free cash flow
c It will lead to lower agency costs
d Management might be tempted to indulge in perks for themselves
126 An interest tax shield is
a The value created by the tax deductibility of interest on debts
Trang 34b A tax benefit that allows current business losses to be used to reduce tax liability
127 Which of the following is NOT an example of a real option?
a The ability of a company to shut down a mine until operating conditions improve
b The ability to sell a successful domestic product in the international market place
c The ability to transfer goods from a party in one country directly to a party in another country in exchange for some other goods of equal value
d The ability to delay an important operating decision until more information can be gathered
128 When developing the adjusted net present value of a project, which of the following would
be considered in the second step?
a The costs of financial distress
b The amount of debt issued to finance the project
c The possibility that the current project could lead to another project
d All of the above
129 The possible loss of export revenue when a foreign market is served by direct foreign investment and the former exports to that market are unable to be sold elsewhere is known as
a Export factor
b Cannibalization of exports
c Cannibalization of imports
d Overhead management fees
130 The weighted average cost of capital (WACC) is the capital budgeting approach that
Trang 35a Finds the value of the unlevered project and then factors in the additional value of financial side effects and from the value of growth options
b Discounts the after-tax free cash flows to stockholders at the required rate of return on the equity
c Is a one-step process that works well for projects that have stable debt-equity ratios
d Cannot be used for international projects
131 What is one of the first decisions in an international valuation?
a Whether to do the valuation using forecasts denominated in a foreign currency or
in the domestic currency
b Whether to source raw materials and intermediate goods locally
c Whether to arrange financing in the foreign or domestic currency
d None of the above
132 The flow-to-equity (FTE) method of capital budgeting finds the value of the equity by discounting the forecasts of the flows to equity holders _
a At the appropriate risk-adjusted required rate of return on the assets associated with the project
b At the appropriate risk-adjusted required rate of return on the assets of the firm
c At the appropriate risk-adjusted required rate of return on the equity
d At the appropriate risk-adjusted required rate of return on the debt
133 Assuming an upward-sloping term structure of spot interest rates, if the expected profits from a foreign project are discounted by a higher discount rate found in later years, the present value of the project is _
Trang 36a The ratio of investment to gross cash flows
b Another name for the plowback ratio
c The change in a firm’s future operating profit divided by its investment
d A firm’s investment divided by its increase in gross cash flow
136 The fraction of operating profits that management chooses to reinvest in the firm is
a The plowback ratio
b The return on investment
c Gross cash flow
d The retention ratio
137 _ is a situation in which managers, acting in the interests of shareholders, accept a high-variance project that may lower overall firm value but that increases shareholder value
a Underinvestment
b Asset substitution
c Financial distress
d Low variance avoidance
138 When doing international capital budgeting, differences in _ across countries must be taken into account
Trang 37d Future profitability
140 Net working capital = working capital – _
a Short-term debt
b Short-term debt and accounts receivable
c Accounts receivable and accounts payable
d Accounts payable and short-term debt
141 If a firm takes out a short-term bank loan to purchase inventory the firm’s net working capital
a Will increase
b Will decrease
c Will not change
d It cannot be determined from the information given
142 Blocked funds arise when
a The government of a foreign country makes the nation’s currency completely inconvertible
b Foreign exchange controls impose unattractive foreign exchange rates
c Taxes are imposed on the repatriation of funds from a foreign affiliate to its parent
d Transaction costs are incurred to convert funds from one currency to another
143 What is a way for a multinational corporation with many affiliates around the world to realize significant savings?
a Centralizing the management of the short-term cash balances of its affiliates
b Outsourcing offshore the management of the short-term cash balances of its affiliates
c Dispersing the management of the short-term cash balances of its affiliates
d Regionally arranging the management of the short-term cash balances of its affiliates
144 Tax planning is the process of