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principles of finance

Questions and Answers of Principles Of Finance

3. Takagi Toyota. Takagi Toyota buys its cars from Toyota Motors-USA, and sells them to U.S. cus- tomers. One of its customers is Green Transport, at car rental firm that buys cars from Takagi Toyota
2. Indian Motorcycles (B). Assuming the facts in Problem 1, Bank of America is now willing to buy Indian Motorcycles's bankers' acceptance for a dis- count of 6% per annum. What would be Indian's
1. Indian Motorcycles (A). Indian Motorcycles exports large-engine motorcycles (greater than 700cc) to Australia and invoices its customers in U.S. dollars. Sydney Wholesale Imports has purchased
13. Governmentally Supplied Credit. Various govern- ments have established agencies to insure against nonpayment for exports and/or to provide export. credit. This shifts credit risk away from
12. Going Abroad. Assume that Great Britain charges a duty of 10% on shoes imported into the United Kingdom. Swishing Shoe Company, in Question 11, discovers that it can manufacture shoes in Ireland.
10. Inca Breweries of Peru. 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
9. Documenting an Export of Lumber from Portland to Yokohama. List the steps involved in the export of lumber from Portland, Oregon, to Yokohama, Japan, using a confirmed letter of credit, payment to
7. Confirming a Letter of Credit. Why would an exporter insist on a confirmed letter of credit?
6. Letter of Credit. Identify each party to a letter of credit (L/C) and indicate its responsibility.
5. Risks. What is the major difference between cur- rency risk and risk of noncompletion? How are these risks handled in a typical international trade transaction?
4. Documents. Explain the difference between a letter of credit (L/C) and a draft. How are they linked?
3. Related Party Trade. What reasons can you give for the observation that intrafirm trade is now greater than trade between nonaffiliated exporters and importers?
2. Affiliated Buyers. For what reason might an exporter use standard international trade documen- tation (letter of credit, draft, order bill of lading) on an intrafirm export to its parent or sister
1. Unaffiliated Buyers. Why might different documentation be used for an export to a nonaffiliated foreign buyer who is a new customer, as compared with an export to a nonaffiliated foreign buyer to
3. If Crosswell is to penetrate the market, some way reducing its prices will be required. What do you suggest? Crosswell International is a U.S.-based manufacturer and distributor of health care
2. How important is Sousa to the value chain of Crosswell? What worries might Crosswell have regarding Sosa's ability to fulfill his obligations? Crosswell International is a U.S.-based manufacturer
1. How are pricing, currency of denomination, and financing interrelated in the value chain for Crosswell's penetration of the Brazilian market? Summarize them using Exhibit 2. Crosswell
2. 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, including
1. Capital Projects and the EBRD. The European Bank for Reconstruction and Development (EBRD) was established to "foster the transition. towards open market-oriented economies and to promote private
10. Santa Clara Electronics: Revenue Growth, Sales Price and Currency Risk Scenario. One of the new analysts at Santa Clara, a recent MBA graduate, believes that it is a fundamental error to evaluate
9. Santa Clara Electronics: Revenue Growth and Sales Price Scenario. In addition to the assumptions employed in Problem 8, Santa Clara now wishes to evaluate the prospect of being able to sell the
8. Santa Clara Electronics: Revenue Growth Scenario. As a result of their analysis in Problem 7, Santa Clara wishes to explore the implications of being able to grow sales volume by 4% per year.
7. Santa Clara Electronics: Baseline Analysis. Evaluate the proposed investment in Argentina by Santa Clara Electronics (U.S.). Santa Clara's man- agement wishes the baseline analysis to be per-
5. Koch Refining Company. Privately owned Koch Refining Company is considering investing in the Czech Republic so as to have a refinery source closer to its European customers. The original
3. Atlantic Properties. Atlantic Properties (U.S.) expects to receive cash dividends from a French joint venture over the coming three years. The first divi- dend, to be paid December 31, 2002, is
1. Trefica de Honduras. Texas Pacific, a U.S.-based pri- vate equity firm, is trying to determine what it should pay for a tool manufacturing firm in Honduras named Trefica. Texas Pacific estimates
12. Real Option Analysis. What is real option analysis? How is it a better method of making investment decisions than traditional capital budgeting analysis?
11. Expropriation Risk. How is expropriation risk fac- tored into the capital budgeting analysis of a foreign. project?
10. Foreign Exchange Risk. How is foreign exchange risk sensitivity factored into the capital budgeting analysis of a foreign project?
9. Viewpoints. What are the differences in the cash flows used in a project point of view analysis and a parent point of view analysis?
8. Cost of Equity. A foreign subsidiary does not have an independent cost of capital. However, in order to esti- mate the discount rate for a comparable host country firm, the analyst should try to
7. Host Country Inflation. How should an MNE factor host country inflation into its evaluation of an invest- ment proposal?
6. Blocked Cash Flows. In the context of evaluating foreign investment proposals, how should a multina- tional firm evaluate cash flows in the host foreign country that are blocked from being
5. Risk-Adjusted Return. Should the anticipated internal rate of return (IRR) for a proposed foreign project be compared to (a) alternative home country proposals, (b) returns earned by local
4. Cash Flow. Capital projects provide both operating cash flows and financial cash flows. Why are operating cash flows preferred for domestic capital budgeting but financial cash flows given major
3. Project versus Parent Valuation.a. Why should a foreign project be evaluated from both a project and a parent viewpoint?b. Which viewpoint, project or parent, gives results closer to the
2. Foreign Complexities. Capital budgeting for a for- eign project is considerably more complex than for a domestic project. What are the factors that add com- plexity?
1. Capital Budgeting Theoretical Framework. Capital budgeting for a foreign project uses the same theoretical framework as domestic capital budgeting. What are the basic steps in domestic capital
3. Recalculate both the expected return analysis and the real option analysis for the Chinese market entry assuming that the revenue probabilities were 25% high and 75% low. Is the project acceptable
2. How does real option analysis use information gather ing differently from discounted cash flow analysis? Trident is evaluating the possibility of entering the Chinese market. The senior management
1. How does real option analysis differ from traditional expected value analysis? Trident is evaluating the possibility of entering the Chinese market. The senior management team, headed by CEO
5. Overseas Private Investment Corporation. The Overseas Private Investment Corporation (OPIC) provides long-term political risk insurance and lim- ited recourse project financing aid to US-based
4. Milken Capital Access Index. The Milken Institute's Capital Access Index (CAI) is one of the newest informational indices that evaluates how accessible world capital markets are to MNES and govern
3. Sovereign Credit Ratings Criteria. The evaluation of credit risk and all other relevant risks associated with the multitude of borrowers on world debt mar- kets requires a structured approach to
2. Global Corruption Report. Transparency Interna- tional (TI) is considered by many to be the leading nongovernmental anticorruption organization in the world today. It has recently introduced its
1. The World Bank. The World Bank provides a grow- ing set of informational and analytical resources to aid in the assessment and management of cross- border risk. The Risk Management Support Group
20. Divestment: China. Assume that Cool Cola. Company also has a network of soft drink bottling plants throughout China, but political stresses between the United States and China increase to the
19. Cool Cola Company. Cool Cola Company, one of the world's major manufacturers of cola soft drinks, is considering the establishment of a very large cola bottling plant in India. Cool Cola expects
18. Corporate Social Responsibility. What is Starbucks' strategy for corporate social responsibility? Is it con- sistent with shareholder wealth maximization?
17. Starbucks' Coffee Procurement. Do you think Starbucks should pay a higher-than-market price to its growers, even if there is no significant difference in the quality of the coffee or reliability
16. Fair Trade Movement. How does the Fair Trade movement differ from the traditional income redis- tribution plans used by many countries?
15. U.S. Anti-Bribery Law. The United States has a law prohibiting U.S. firms from bribing foreign officials and business persons, even in countries where bribery is a normal practice. Some U.S.
14. Managing Global-Specific Risks. What are the main strategies MNEs can use to manage the global- specific risks you identified in Question 13?
13. Global-Specific Risks. What are the main types of political risks that are global in origin?
12. Managing Protectionism.a. What are the traditional methods for countries to implement protectionism?b. What are some typical nontariff barriers to trade?c. How can MNEs overcome host-country
11. Protectionism Defined.a. Define protectionism and identify the industries that are typically protected.b. Explain the "infant industry" argument for pro- tectionism.
10. Strategies to Manage Cultural and Institutional Risks. Explain the strategies that an MNE can use to manage each of the cultural and institutional risks that you identified in Question 9, except
9. Cultural and Institutional Risks. Identify and explain the main types of cultural and institutional risks, except protectionism.
8. Blocked Funds. Explain the strategies that an MNE can use to counter blocked funds.
7. Country-Specific Risk. Define the following terms:a. Transfer riskb. Blocked fundsc. Sovereign credit risk
6. Operating Strategies after the FDI Decision. The following operating strategies, among others, are expected to reduce damage from political risk. Explain each one and how it reduces damage.a.
5. Investment Insurance and Guarantees (OPIC).a. What is OPIC?b. What types of political risks can OPIC insure against?
4. Investment Agreement. An investment agreement spells out the specific rights and responsibilities of a foreign firm and its host government. What are the main financial policies that should be
3. Governance Risk.a. What is meant by the term governance risk?b. What is the most important type of governance risk?
2. Country Risk Ratings. Exhibit 18.2 shows country risk ratings for selected countries. Using Moody's, S&P, and Euromoney rating services, prepare a country risk rating for Argentina.
1. Political Risk Definition. In order for an MNE to identify, measure, and manage its political risks, it needs to define and classify these risks. Define the following political risks:a.
3. Many international trade and development experts argue that China is just now discovering the difference between being a major economic player in global business and its previous peripheral role
2. Whether it is lead paint on toys or defective sliding sides on baby cribs, whose responsibility do you think it is to assure safety-the company, like Mattel, or the country, in this case China?
1. Mattel's global sourcing in China, like all other toy manufacturers, was based on both low-cost manufac- turing, low-cost labor, and a growing critical mass of factories competitively vying for
2. International Management and Strategy Consul- tancies. The management consulting industry has been one of the primary resources utilized by MNEs throughout the world in the 1990s to design and
1. International Capital Flows: Public and Private. Major multinational organizations attempt to track the relative movements and magnitudes of global capital investment. Using the following Web
15. Cross-Border Strategic Alliance. The term "cross- border strategic alliance" conveys different mean- ings to different observers. What are these meanings?
14. Greenfield Investment versus Acquisition. What are the advantages and disadvantages of serving a for- eign market through a greenfield foreign direct investment compared to an acquisition of a
13. Joint Venture versus Wholly Owned Production Subsidiary. What are the advantages and disadvan- tages of forming a joint venture to serve a foreign market compared to serving that market with a
12. Licensing and Management Contracts versus Producing Abroad. What are the advantages and disadvantages of licensing and management con- tracts compared to producing abroad?
11. Exporting versus Producing Abroad. What are the advantages and disadvantages of limiting a firm's activities to exporting compared to producing abroad?
10. Where to Invest. The decision about where to invest abroad is influenced by behavioral factors.a. Explain the behavioral approach to FDI.b. Explain the international network theory explana- tion
9. Financial Links to OLL. Financial strategies are directly related to the OLI Paradigm.a. Explain how proactive financial strategies are related to OLI.b. Explain how reactive financial strategies
8. OLI Paradigm. The OLI Paradigm is an attempt to create an overall framework to explain why MNES choose FDI rather than serve foreign markets through alternative modes.a. Explain what is meant by
7. Competitiveness of the Home Market. A strongly competitive home market can sharpen a firm's com- petitive advantage relative to firms located in less competitive markets. This phenomenon is known
6. Economies of Scale and Scope. Explain briefly how economies of scale and scope can be developed in production, marketing, finance, research and devel- opment, transportation, and purchasing.
5. Competitive Advantage. In deciding whether to invest abroad, management must first determine whether the firm has a sustainable competitive advantage that enables it to compete effectively in the
4. Strategic Motives for Foreign Direct Investment (FDI).a. Summarize the five main motives that drive the decision to initiate FDI.b. Match these motives with the following MNES: General Motors
3. Market Imperfections. MNEs strive to take advan tage of market imperfections in national markets for products, factors of production, and financial assets. Large international firms are better
2. Theory of Comparative Advantage. What is the essence of the theory of comparative advantage?
1. Evolving into Multinationalism. As a firm evolves from purely domestic into a true multinational enter- prise, it must consider (a) its competitive advantages, (b) where it wants to locate
3. All things considered, do you believe that the JV par- ties would consider the JV successful? Although it never exported and it never reached its production goal (at least to date), would the
2. Why do you think the kit-assembly approach was not more successful in Russia? It was a common automaker production/distribution strategy employed in much of the world's emerging markets, but was
1. How did the original JV agreement balance out strate- gic needs versus financial needs for the two JV part- ners? Do you believe the JV partners were aligned in terms of the strategic interests?
1. Rosneft openly cautioned or warned potential investors that the company's government owner may in the future "engage in business practices that do not maximize shareholder value." Why then would
2. Rosneft-like any security investment-poses a num- ber of common risks, but also contains a number of unique risks due to who it is, what it does, and where it operates. Separate the risks into two
3. Using the financial data provided in the case, what would you propose as the offering price if you were Peter O'Brien? The prospectus says that Rosneft is a defendant or respondent in four cases
1. Designing a Strategy to Source Equity Globally. Exhibit 13.1 illustrates alternative paths to globalizing the cost and availability of capital. Identify the specific steps in Exhibit 13.1 that
2. Depositary Receipts-Definitions. Define the fol- lowing terms:a. ADRsb. GDRse. Sponsored depositary receiptsd. Unsponsored depositary receipts
3. ADRs. Distinguish between the three levels of com- mitment for ADRs traded in the United States.
4. Foreign Equity Listing and Issuance. Give five rea- sons why a firm might cross-list and sell its shares on a very liquid stock exchange.
5. Cross-Listing Abroad. What are the main reasons causing U.S. firms to cross-list abroad?
6. Implementing a Strategy to Source Equity Globally. Using the stock exchange characteristics shown in Exhibit 13.5, design a chronological strategy to source equity globally for an MNE located in
8. Alternative Instruments. What are five alternative instruments that can be used to source equity in global markets?
9. Directed Public Share Issue.a. Define what is meant by a "directed public share issue."b. Why did Novo choose to make a $61 million directed public share issue in the United States in 1981?

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