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multinational business finance

Questions and Answers of Multinational Business Finance

Branded Co. (Italy). Branded Co. (Italy) is considering investing Venezuelan bolivar VEF 20,000,000 in Venezuela to build a wholly owned haute couture plant to export globally. After five years, the
Carloco Carpets Co. Carloco Carpets Co., Germany, manufactures high-grade dyes for textiles. Until now, manufacturing was being subcontracted to other companies, but for quality control reasons
ScotchOrganic Co. Privately owned ScotchOrganic Co. is considering investing in Romania to cut down on transportation costs to Eastern European markets.The original investment in Romanian leu
Triple-A Linen: Baseline Analysis. Evaluate the proposed investment in Israel by Triple-A Linen Components (UK). Triple-A’s management wishes the baseline analysis to be performed in GBP (and
Triple-A Linen: Revenue Growth Scenario. As a result of their analysis in the previous question, Triple-A wishes to explore the implications of being able to grow sales volume by 5% per year. Israel
Triple-A: Revenue Growth and Sales Price Scenario.In addition to the assumptions employed in Problem 8, Triple-A now wishes to evaluate the prospect of being able to sell the Israel subsidiary at the
Triple-A: Revenue Growth, Sales Price, and Currency Risk Scenario. Leila Smith, a new analyst at Triple-A and a recent MBA graduate, believes that it is a fundamental error to evaluate the Israeli
Capital Projects and the EBRD. The European Bank for Reconstruction and Development (EBRD) was established to foster market-oriented business development in the former Soviet Bloc. Use the EBRD Web
Emerging Markets: China. Long-term investment projects such as electrical power generation require a thorough understanding of all attributes of doing business in that country. China is currently the
BeyondBrics: The Financial Times’ Emerging Market Hub. Check the FT’s blog on emerging markets for the latest debates and guest editorials.Financial Times Blog on Emerging Markets
Sourcing Global Debt and Equity Markets. What is the sequence of strategies used to source both equity and debt capital globally? Should a firm start by sourcing global debt or equity markets?
Optimal Financial Structure. If the cost of debt is less than the cost of equity, why doesn’t the firm’s cost of capital continue to decrease with the use of more and more debt?
Multinationals and Cash Flow Diversification.How does the multinational’s ability to diversify its cash flows alter its ability to use greater amounts of debt?
Foreign Currency Debt. What are the costs and benefits of taking loans in foreign currency?
Three Keys to Global Equity. What are the three key elements related to raising equity capital in the global marketplace?
Global Equity Alternatives. What are the alternative structures available for raising equity capital on the global market?
Directed Public Issues. What is a directed public issue? What is the purpose of this kind of international equity issuance?
Depositary Receipts. What is a depositary receipt?Give examples of equity shares listed and issued in foreign equity markets in this form?
GDRs, ADRs, and GRSs. What is the difference between a GDR, ADR, and GRS? How are these differences significant?
Sponsored and Unsponsored. ADRs and GDRs can be sponsored or unsponsored. What does this mean and will it matter to investors purchasing the shares?
Depository Receipts (DRs). What are the benefits of DRs to issuers and investors? What are the risks associated with delisting DRs?
IPOs and FOs. What is the significance of IPOs versus FOs?
Cross-Listing. What are the main benefits and disadvantages to firms that cross-list their shares on multiple stock markets?
GDR and Domestic Share Prices. Should there be a strong co-movement of GDR price with that of the underlying domestic share?
Barriers to Cross-Listing. What are the main barriers to cross-listing abroad?
Private Placement. What is a private placement? What are the comparative pros and cons of private placement versus a pubic issue?
MNE Exit Strategy. Suppose an MNE plans on operating temporarily in a new market. Should it cooperate with a local venture capital or a private equity firm?
Bank Loans versus Securitized Debt. For multinational corporations, what is the advantage of securitized debt instruments sold on a market versus bank borrowing?
International Debt Instruments. What are the primary alternative instruments available for raising debt on the international marketplace?
Eurobond versus Foreign Bonds. What is the difference between a eurobond and a foreign bond and why do two types of international bonds exist?
Funding Foreign Subsidiaries. What are the primary methods of funding foreign subsidiaries, and how do host government concerns affect those choices?
Local Norms. Should foreign subsidiaries of multinational firms conform to the capital structure norms of the host country or to the norms of their parent’s country?
Internal and External Financing of Foreign Subsidiaries.Is it advisable for MNEs to seek internal or external sources of finance for their subsidiaries?
Credit Terms. Why do MNEs with high credit rating get better credit terms in comparison to their smaller counterparts?
Al-Niger Co. (Nigeria). Al-Niger Co., an oil firm headquartered in Abuja (Nigeria), borrows €10,000,000 for one year at an annual rate of interest of 8%.a. What is the cost of this debt in Nigerian
Foreign Exchange Risk and the Cost of Borrowing Swiss Francs. The chapter demonstrated that a firm borrowing in a foreign currency could potentially end up paying a very different effective rate of
MAN Invest (U.K.). MAN Invest, a U.K.-based investment partnership, borrows €100,000,000 at a time when the exchange rate is $1.3460/€. The entire principal is to be repaid in three years, and
Inter-KSA (Saudi Arabia). Inter-KSA is a Saudi Arabian airline company specializing in internal flights that needs €50,000,000 for one year to finance working capital. The airline firm has two
Great Empire Capital, S.A. If Great Empire Capital, S.A., is raising funds via a euro-medium-term note with the following characteristics, how much in euros will Great Empire receive for each
British Bank. A British bank plans to sell £5,000,000 of commercial paper in Frankfurt with a 90-day maturity and discounted to yield 4.6% per annum. What will be the immediate proceeds to the
M.M. Monroe Manufacturing, Inc. M.M. Monroe Manufacturing, Inc., a French multinational company, has the following debt components on its balance sheet. M.M. Monroe’s finance staff estimates their
Lake Petrol. Lake Petrol, a European gas company, is borrowing CHF1,000,000,000 via a syndicated eurocredit for 6 years at 120 basis points over CHFLIBOR.LIBOR for the loan will be reset every six
Adamantine Architectonics. Adamantine Architectonics consists of a U.S. parent and wholly owned subsidiaries in Malaysia (A-Malaysia) and Mexico (A-Mexico). Selected portions of their non-
JPMorgan. JPMorgan’s Latin American Equity Research department produced the following WACC calculation for Petrobrás of Brazil versus Lukoil of Russia in their June 18, 2004, report. Evaluate the
UNIBANCO. UNIBANCO estimated the weighted average cost of capital for Petrobrás to be 13.2%in Brazilian reais in August of 2004. Evaluate the methodology and assumptions used in the
Citigroup SmithBarney (Dollar). Citigroup regularly performs a U.S. dollar-based discount cash flow (DCF)valuation of Petrobrás in its coverage. That DCF analysis requires the use of a discount
Citigroup SmithBarney (Reais). In a report dated June 17, 2003, Citigroup SmithBarney calculated a WACC for Petrobrás denominated in Brazilian reais (R$).Evaluate the methodology and assumptions
BBVA Investment Bank. BBVA utilized a rather innovative approach to dealing with both country and currency risk in their December 20, 2004, report on Petrobrás. Evaluate the methodology and
Petrobrás’ WACC Comparison. The various estimates of the cost of capital for Petrobrás of Brazil appear to be very different, but are they? Reorganize your answers to Problems 10–14 into those
ChocTurk Co. ChocTurk Co. is a Turkish chocolate manufacturer that exports its products to neighboring European nations. Since its clients are mostly European, ChocTurk Co. evaluates all business
Global Equities. Bloomberg provides extensive coverage of the global equity markets 24 hours a day.Using the Bloomberg site listed here, note how different the performance indices are on the same
JPMorgan and Bank of New York Mellon. JPMorgan and Bank of New York Mellon provide up to the minute performance of American Depositary Receipts in the U.S. marketplace. The site highlights the
London Stock Exchange. The London Stock Exchange(LSE) lists many different global depositary receipts among its active equities. Use the LSE’s Internet site to track the performance of the largest
Apple does not use tax gimmicks. Apple does not move its intellectual property into offshore tax havens and use it to sell products back into the U.S. in order to avoid U.S. tax; it does not use
Primary Objective. What is the primary objective of multinational tax planning?
Tax Morality.a. Discuss “tax morality” in regard to tax evasion and avoidance.b. What are the implications of MNEs’ decisions to invest in low-tax nations? How can MNEs weigh their cost-cutting
Tax Neutrality. Does the tendency of nations to move towards territorial taxation lead to tax neutrality at the global level?
Approaches to Taxing MNEs. Different countries adopt diverse approaches to taxing income generated by MNEs. What are the main advantages of each of these tax approaches? Explain how these approaches
Direct versus Indirect Taxes. Do direct or indirect taxes place more burdens on the poor?
VAT versus Income Tax. Explain the importance of income tax over VAT in emerging economies.
Value-Added Tax. Answer the following questions:a. Compare sales tax to value-added tax.b. Sales taxes and VAT are a major source of fiscal revenue, reaping more proceeds in developed nations in
Withholding Tax. What is a withholding tax and why do governments impose them?
Tax Treaty. What is usually included within a tax treaty?
Active and Passive Income Tax. Are portfolio earnings taxed as active or passive income?
Tax Types. Taxes are classified based on whether they are applied directly to income, called direct taxes, or to some other measurable performance characteristic of the firm, called indirect taxes.
Foreign Tax Credit. What is a foreign tax credit? Why do countries give credit for taxes paid on foreign source income?
Earnings Stripping. What is earnings stripping, and what are some examples of how multinational firms pursue it?
Controlled Foreign Corporation. What is a controlled foreign corporation and what is its significance in global tax management?
Transfer Pricing. What is a transfer price and can a government regulate it? What difficulties and motives does a parent multinational firm face in setting transfer prices?
Fund Positioning. What is fund positioning?
Income Tax Effect. What is the income tax effect, and how may a multinational firm alter transfer prices as a result of the income tax effect?
Correct Transfer Pricing. What is meant by “correct”or proper transfer pricing? How can local national authorities impose “correct” transfer pricing on MNEs? What is the main requisite for
Cross-Crediting. Define cross-crediting and explain why it may or may not be consistent with a worldwide tax regime.
Purposes of Transfer Pricing. In addition to calculating and setting the tax liabilities of firms, what other purposes may transfer prices serve?
Measuring Managerial Performance. What role does transfer pricing have within multinational companies when measuring management performance? How can transfer pricing practices within a firm conflict
Tax Avoidance and Havens. One example of tax avoidance is when firms park their funds in tax havens.While considered legal, do you think that tax avoidance is entirely ethical?
Corporate Inversion. What is a corporate inversion, and why do many U.S. corporations want to pursue it although it is highly criticized by public and private parties alike?
TexManchester’s Foreign-Source Income. TexManchester is a textile manufacturing firm based in Manchester, U.K. The firm distributes linen and clothing items in over 50 nations worldwide. The
EcuAir (Ecuador). MexAir is a Mexican-based airline firm with a wholly owned subsidiary in Ecuador.The subsidiary, EcuAir, has just completed a strategic planning report for its parent company,
Kraftstoff of Germany. Kraftstoff is a German-based company that manufactures electronic fuel-injection carburetor assemblies for several large automobile companies in Germany, including Mercedes,
Chinglish Dirk (A). Corporate management of Torrington Edge is considering repositioning profits within the multinational company. What happens to the profits of Chinglish Dirk and Torrington Edge,
Chinglish Dirk (B). Encouraged by the results from the previous problem’s analysis, corporate management of Torrington Edge wishes to continue to reposition profit in Hong Kong. It is, however,
Chinglish Dirk (C). Not to leave any potential tax repositioning opportunities unexplored, Torrington Edge wants to combine the components of Problems 4 and 5 with a redistribution of overhead costs.
Global Taxes. Web sites like TaxWorld.org provide detailed insights into the conduct of business and the associated tax and accounting requirements of doing business in a variety of
International Taxpayer. The United States Internal Revenue Service (IRS) provides detailed support and document requirements for international taxpayers.Use the IRS site to find the legal rules and
Official Government Tax Authorities. Tax laws are constantly changing, and an MNE’s tax planning and management processes must therefore include a continual updating of tax practices by country.
Tax Practices for International Business. Many of the major accounting firms provide online information and advisory services for international business activities as related to tax and accounting
Crosswell International is a U.S.-based manufacturer and distributor of health care products, including children’s diapers.Crosswell has been approached by Leonardo Sousa, the president of Material
Unaffiliated Buyers. Why might different documentation be used for an export to a non-affiliated foreign buyer who is a new customer as compared to an export to a non-affiliated foreign buyer to whom
Affiliated Trade Relationship. Affiliated exporters and importers resort to some types of trade protection.What is the difference between trade protection used by affiliated and non-affiliated
Intra-firm Trade. Why has the volume of intra-firm trade surged in the past two decades? What are the main advantages and disadvantages of intra-firm trade?
Foreign Trade Documents. What are the instruments that reduce risks of foreign trade partners?
International Trade Transaction Risks. What are the two main risks associated with international trade transactions? How can these risks be managed?
Secure Letter of Credit (L/C). What is an L/C? What is the most secure type of L/C for exporters?
Letters of Credit. What is the difference between confirmed and unconfirmed letters of credit?
Documenting an Export of Hard Drives. List the steps involved in the export of computer hard disk drives from Penang, Malaysia, to San Jose, California, using an unconfirmed letter of credit
Export Credit Insurance. Exporters face substantial non-payment risks from the importing party. One method to mitigate this risk is export credit insurance.What is export credit insurance? What are
Governmental Trade Promotion Measures. As part of an overall export-promotion strategy, various governments have followed measures to enhance their exports and international trade mainly through
Nikken Microsystems (A). Assume Nikken Microsystems has sold Internet servers to Telecom España for€700,000. Payment is due in three months and will be made with a trade acceptance from Telecom
Nikken Microsystems (B). Assume that Nikken Microsystems prefers to receive British pounds rather than euros for the trade transaction described in Problem 1. It is considering two alternatives: (1)

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