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multinational business finance

Questions and Answers of Multinational Business Finance

Romiana’s Returns (A). Jennie Smith is a Londonbased investor. She has been closely following her investment in 1,000 shares of Romiana, an Italian firm that went public in February 2012. When she
Romiana’s Returns (B). Jennie Smith chooses not to sell her shares at the time described in Problem 2. She waits, expecting the share price to rise further after the announcement of quarterly
Romiana’s Returns (C). If the current spot exchange rate is £0.75/€. Using the same prices and exchange rates as in Problem 3, Romiana (B), what would be the total return on the Romiana
Building Society’s Dividend. The following table shows the market share price for a British building society. Since its launch in September 2004, the management intends to pay a fixed annual
Deutschelander’s Rate of Return. Deutschlander Motor Co. issues new stocks and promises to pay an annual dividend of €1.5. Financial forecasters predict that its market share price will rise from
Pharma Acquisitions. The price/earnings ratio (P/E)is one of the tools used to compare companies in the same sector. A high P/E ratio means that investors pay more for each Swiss franc of net income,
Corporate Governance: Overstating Earnings. After the numerous cases of frauds and scandals, a number of firms had to lower their previously reported earnings due to accounting errors or fraud.
Yehti Manufacturing (A). Dual classes of common stock are common in a number of countries.Assume that Yehti Manufacturing has the following capital structure at book value. The A-shares have ten
Yehti Manufacturing (B). Assume all of the same debt and equity values for Yehti Manufacturing in Problem 9, with the sole exception that both A-shares and B-shares have the same voting
Softie BabyTex (A). Softie BabyTex is an Indian-based textile firm that produces all its financials in Indian rupees (INR). Softie BabyTex’s sales director, Simon Smart, was blamed for declining
Chief Auto Lubricants. Jahangir Ahmad of Chief Auto Lubricants took a loan in euros in 2013. Ed Adams, a new finance executive, has recently joined Chief Auto Lubricants. Ed asks Jahangir to pay out
Mattel’s Global Performance. Mattel (U.S.) achieved significant sales growth in its major international regions between 2001 and 2004. In its filings with the United States Security and Exchange
Chinese Sourcing and the Yuan. Harrison Equipment of Denver, Colorado, purchases all of its hydraulic tubing from manufacturers in mainland China. The company has recently completed a corporate-wide
S&P Equity Returns History. The U.S. equity markets have delivered very different returns over the past 90 years. Use the following data arranged by decade to answer the following questions about
Multinational Firms and Global Assets/Income. The differences among MNEs is striking. Using a sample of firms such as the following, pull from their individual Web pages the proportions of their
Corporate Governance. There is no hotter topic in business today than corporate governance. Use the following site to view recent research, current events and news items, and other information
Fortune Global 500. Fortune magazine is relatively famous for its listing of the Fortune 500 firms in the global marketplace. Use Fortune’s Web site to find the most recent listing of the global
Financial Times. The Financial Times, based in London—the global center of international finance—has a Web site with a wealth of information. After going to the home page, go to “Markets” and
When firms decide to invest in foreign countries, their decision is based on the competitive advantage of the firm as well as those of the host country. What are some of competitive advantages
It is recognized that economies of scale and scope reduce the average costs of firms. Should firms avoid excessive expansion to avoid potential diseconomies of scale and scope?
One method by which multinational firms can increase profitability and competitiveness is to operate in competitive home markets. What are the factors that can enhance a home country’s competitive
The OLI paradigm attempts to explain why firms choose FDI to alternative modes of foreign market entry. Explain how the financial strategies of firms are directly related to the OLI Paradigm.
What are the factors that lead a firm to expand its investment and production operations into new foreign markets?
What is the optimal entry mode into a foreign market for MNEs that require tight control over technological knowhow?Explain.
What are the main advantages and disadvantages that parties should consider before forming strategic alliances?
Explain the methods by which MNEs can tackle issues of governance as they expand into new nations.
Host governments often engage investment advisers to assist them with investments, investment agreements, and investment insurance. What are advisors’ responsibilities for each of these matters?
What are the various micro and macro political risks that MNEs have to assess before deciding to invest in a foreign country?
Why do MNEs operate in countries that impose transfer restrictions and how can they manage impending transfer risks?
Give examples of the cultural risks specific to emerging markets that MNEs could encounter?
It is commonly argued that many cultural risks in emerging market economies can be reduced by institutional development. Do you agree?
Is sovereign credit risk an example of a micro or macro risk? How can it impact multinational companies?
What are the main reasons that emerging economies protect their domestic markets? What are some of the arguments against protectionism? Is it advisable that multinationals operate in protected
Should multinational firms worry more about micro, country-specific, or global political risks?
Explain whether it is more feasible for multinational firms to manage or mitigate micro, country-specific, or global political risks.
Multinational firms are forbidden to engage in unethical transactions by the local anti-bribery, anti-child-labor law, and anticorruption laws of the countries in which they operate and those of
What is sensitivity analysis? How do firms use sensitivity analysis to assess various types of risks inherent in investment decisions?
Which viewpoint, project or parent, gives results closer to the traditional meaning of net present value (NPV) in capital budgeting?
When evaluating a potential foreign investment, how would inflation in the host country affect a multinational firm’s decision to invest in that nation? Would blocked cash flows also affect the
How does host country inflation impact the operations of MNEs? How can MNEs mitigate these effects?
What are some of the problems that a multinational firm encounters during their capital budgeting process?
Foreign Exchange, Expropriation, and Political Risks. What are the main differences between foreign exchange, expropriation, and political risks?
Explain why cross-border mergers and acquisitions are difficult to implement.
Compare and contrast NPV, APV, and real option analysis, explaining how each of these analysis techniques affects investment decisions.
Should multinational firms conduct real options or conventional financial options analysis in cross-border M&As?
Affiliated exporters and importers resort to some types of trade protection.What is the difference between trade protection used by affiliated and non-affiliated businesses?
Why has the volume of intrafirm trade surged in the past two decades? What are the main advantages and disadvantages of intrafirm trade?
What are the instruments that reduce risks of foreign trade partners?
What are the two main risks associated with international trade transactions? How can these risks be managed?
What is a letter of credit (L/C)? What is the most secure type of L/C for exporters?
What is the difference between confirmed and unconfirmed letters of credit?
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 its advantages and
As part of an overall export-promotion strategy, various governments have followed measures to enhance their exports and international trade mainly through providing export credit insurance and by
Makatomi Toyota buys its cars from Toyota Motors (U.S.), and sells them to U.S. customers. One of its customers is EcoHire, a car rental firm that buys cars from Nakatomi Toyota at a wholesale price.
Sunny Coast Enterprises has been approached by a factor that offers to purchase the Hong Kong Media Imports receivable at a 16% per annum discount plus a 2%charge for a non-recourse clause.a. What is
United Sports is considering bidding to sell \($100,000\) of ski equipment to Phang Family Enterprises of Seoul, South Korea. Payment would be due in six months. Since United Sports cannot find good
United Sports could also buy export credit insurance from FCIA for a 1.5% premium.It finances the $100,000 receivable from Phang from its credit line at 6% per annum interest.No compensating bank
Inca Breweries of Lima, Peru, has received an order for 10,000 cartons of beer from Alicante Importers of Alicante, Spain.The beer will be exported to Spain under the terms of a letter of credit
Sézane Company, Paris, has received an order for 50,000 cartons of athletic shoes from Southampton Footware, Ltd. (SFL), England, payment to be in British pounds sterling.The shoes will be shipped
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?
What are the costs and benefits of taking loans in foreign currency?
What are the benefits of depository receipts to issuers and investors? What are the risks associated with delisting depository receipts?
What are the differences among a GDR, ADR, and GRS? How are these differences significant?
What are the main benefits and disadvantages to firms that cross-list their shares on multiple stock markets?
Should there be a strong co-movement of GDR price with that of the underlying domestic share? Explain.
Suppose a multinational firm plans on operating temporarily in a new market.Should it cooperate with a local venture capital or a private equity firm?
What is the advantage of securitized debt instruments sold on a market versus bank borrowing for multinational corporations?
Explain if it is advisable for multinational firms to seek internal or external sources of finance for their subsidiaries.
Why do multinational firms with high credit rating get better credit terms in comparison to their smaller counterparts?
Sagard Equity, a private equity firm headquartered in Paris, borrows £2,000,000 for one year at 5.25% interest.a. What is the euro cost of this debt if the pound depreciates from €1.1837 = £1.00
Trigone Associates S.A, a Swiss-based investment partnership, borrows €50,000,000 at a time when the exchange rate is CHF1.10 = €1.00. The entire principal is to be repaid in three years, and
Styrene Polymers, Inc., a U.S. medical plastics manufacturer, has the following debt components in its consolidated capital section.Styrene’s finance staff estimates their cost of equity to be 20%.
Fonterra is New Zealand’s largest company. It is a dairy nutrition company and controls a large part of dairy exports worldwide. The company evaluates all business results, including financing
Discuss tax morality in the context of tax evasion and avoidance. What are the implications of a firm’s decision to invest in low-tax nations? How can firms weigh their cost-cutting decisions
Does the tendency of nations to move toward territorial taxation lead to tax neutrality at the global level?
Different countries adopt diverse approaches to taxing income generated by multinational firms. What are the main advantages of each of these tax approaches? Explain how the approaches impact the
Do direct or indirect taxes place more burdens on the poor?
Explain the importance of income tax over VAT in emerging economies.
Compare sales tax to value added tax. What are the factors that make countries levy different levels of sales taxes and VAT?
Are portfolio earnings taxed as active or passive income?
Taxes are classified based on whether they are applied directly to income—direct taxes—or to some other measurable performance characteristic of the firm—indirect taxes. Classify each of the
What is meant by “correct” or proper transfer pricing? How can local national authorities impose “correct” transfer pricing on multinational firms? What is the main requisite for the
In addition to calculating and setting the tax liabilities of firms, what other purposes may transfer prices serve?
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?
What are the strategies that multinational firms can adopt in order to access capital in segmented markets?
When compared to domestic firms, why do multinational firms enjoy more capital availability and lower capital costs?
Why is equity risk premium important to investors? Why is it necessary to use one consistent measurement of risk premiums?
Why do portfolio managers often add securities issued on emerging markets despite the high risks associated with these markets?
What happens to a firm’s marginal cost of capital as it expands in an illiquid market?How can it overcome these difficulties?
What is market segmentation, and what are the six main causes of market segmentation?
Explain why illiquidity and segmentation lead to financial market imperfections. Can multinational firms tackle market imperfections?
What are the factors that determine the efficiency of MNEs’strategies for internationalizing their cost of capital?Explain how such strategies are beneficial for global and national economies as
Why do some multinational firms manage to expand their operations beyond national borders? How can such firms in emerging markets raise extra funds to finance their expansions?
Terry McDermott now estimates Aidan’s risk-free rate to be 3.60%, the company’s credit risk premium is 4.40%, the domestic beta is estimated at 1.05, the international beta is estimated at 0.85,
Eni S.p.A. is an Italian oil company. Its current cost of debt is 3.8%, and the 10-year German bond yield, the proxy for the risk-free rate of interest, is 1.4%. The expected return on the market
WestGas Conveyance, Inc. WestGas Conveyance, Inc. is a large U.S. natural gas pipeline company that wants to raise \($120\) million to finance expansion.WestGas wants a capital structure that is 50%
Kashmiri is the largest and most successful specialty goods company based in Bangalore, India. It has not yet entered the North American marketplace but is considering West Gas finds that it can
Gray Wolf, Ltd., a Canadian manufacturer of raincoats, does not selectively hedge its transaction exposure. Instead, if the date of the transaction is known with certainty, all foreign
Kraftangan Ornamentals, a Malaysian, 100% privately-owned ornamentals company, has signed an agreement to acquire a 60% ownership share of Taiwan Ornamentals, a Taiwanbased, privately-owned
Singflux is a Singapore-based company that manufactures, sells, and installs water-treatment plants. On June 1, the company sold a water-treatment plant to the City of Hiroshima, Japan, for

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