Homework 1 Chapter 1 Problems 2. Comparative Advantage a. Explain how the theory of comparative advantage relates to the need for Interational business. 5. International Opportunities Due to the Internet a. What factors cause some firms to become more internationalized than others? 23. Valuation of an MNC Yahool has expanded its business by establishing portals in numerous countries, including Argentina, Australia, China, Germany, Ireland, Japan, and the United Kingdom. It has cash outflows associated with the creation and administration of each portal. It also generates cash Inflows from selling advertising space on its website. Each portal results in cash flows in a different currency. Thus the valuation of Yahool is based on its expected future net cash flows in Argentine pesos after converting them into U.S. dollars, its expected net cash flows in Australian dollars after converting them into U.S. dollars, and so on. Explain how and why the valuation of Yahool would change it most investors suddenly expected that the dollar would weaken against most currencies over time. 32. MNC Cash Flows and Exchange Rate Risk Asheville Co. has a subsidiary in Mexico that develops software for its parent. It rents a large facility in Mexico and hires many people in Mexico to work in the facility. Asheville Co. has no other international business. All operations are prosently funded by Asheville's parent. All tije software is sold to U.S. firms by Asheville's parent and invoiced in U.S. dollars. a. If the Mexican peso appreciates against the dollar, does this have a favorable offect. unfavorable effect, or no effect on Ashevile's value? 34. Uncertainty Surrounding an MNC's Cash Flows a. Assume that Bangor Co. (a U.S. firm) knows that it will have cash inflows of $900.000 from domestic operations, cash inflows of 200,000 Swiss francs due to exports to Swiss operations, and cash outflows of 500.000 Swiss francs at the end of the year. While the future value of the Swiss francis uncertain because it fluctuates your best guess is that the Swiss franc's va ve will be $1.10 at the end this year. What are the expected collar cash flows of Bangor Co? b. Assume that Concord Co. ( U.S. firm) is in the same industry Bangor Co. There is no political risk that could have any impact on the cash flows of other form Concord Co knows that it will have cash inflows of $900,000 from domestic operations, cash inflows of 700.000 Swiss francs due to exports to Swiss operations, and cash outflows of 800.000 Swiss francs at the end of the year is the valuation of the total cash flows of Concord Co more uncertain or less uncertain than the total cash flows of Bangor Co.? Explain briefly. Homework 1 Chapter 1 Problems 2. Comparative Advantage a. Explain how the theory of comparative advantage relates to the need for Interational business. 5. International Opportunities Due to the Internet a. What factors cause some firms to become more internationalized than others? 23. Valuation of an MNC Yahool has expanded its business by establishing portals in numerous countries, including Argentina, Australia, China, Germany, Ireland, Japan, and the United Kingdom. It has cash outflows associated with the creation and administration of each portal. It also generates cash Inflows from selling advertising space on its website. Each portal results in cash flows in a different currency. Thus the valuation of Yahool is based on its expected future net cash flows in Argentine pesos after converting them into U.S. dollars, its expected net cash flows in Australian dollars after converting them into U.S. dollars, and so on. Explain how and why the valuation of Yahool would change it most investors suddenly expected that the dollar would weaken against most currencies over time. 32. MNC Cash Flows and Exchange Rate Risk Asheville Co. has a subsidiary in Mexico that develops software for its parent. It rents a large facility in Mexico and hires many people in Mexico to work in the facility. Asheville Co. has no other international business. All operations are prosently funded by Asheville's parent. All tije software is sold to U.S. firms by Asheville's parent and invoiced in U.S. dollars. a. If the Mexican peso appreciates against the dollar, does this have a favorable offect. unfavorable effect, or no effect on Ashevile's value? 34. Uncertainty Surrounding an MNC's Cash Flows a. Assume that Bangor Co. (a U.S. firm) knows that it will have cash inflows of $900.000 from domestic operations, cash inflows of 200,000 Swiss francs due to exports to Swiss operations, and cash outflows of 500.000 Swiss francs at the end of the year. While the future value of the Swiss francis uncertain because it fluctuates your best guess is that the Swiss franc's va ve will be $1.10 at the end this year. What are the expected collar cash flows of Bangor Co? b. Assume that Concord Co. ( U.S. firm) is in the same industry Bangor Co. There is no political risk that could have any impact on the cash flows of other form Concord Co knows that it will have cash inflows of $900,000 from domestic operations, cash inflows of 700.000 Swiss francs due to exports to Swiss operations, and cash outflows of 800.000 Swiss francs at the end of the year is the valuation of the total cash flows of Concord Co more uncertain or less uncertain than the total cash flows of Bangor Co.? Explain briefly