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Question 1

  1.  

    Even if production costs are higher in a
    foreign country, a U.S. firm may establish a manufacturing plant in the foreign
    country now if:

    Answer

    the host government of that country
    eliminates all quotas.

    the host government of that country
    reduces all quotas.

    the host government of that country
    increases all quotas.

    the host government of that country
    eliminates all tariffs.

1 points  

Question 2

  1.  

    To fully benefit from economies of scale, an
    MNC should:

    Answer

    establish a subsidiary in a new
    market that can sell products produced elsewhere.

    establish a subsidiary in a market
    that has relatively low costs of labor or land.

    establish a subsidiary in a market
    where raw materials are cheap and accessible.

    participate in a joint venture in
    order to learn about a production process or other
    operations.

1 points  

Question 3

  1.  

    To diversify internationally for the purpose
    of reducing risk, which strategy is appropriate?

    Answer

    Establish subsidiaries in markets
    whose business cycles are the same as those where existing subsidiaries are
    based.

    Establish a subsidiary in a market
    that has relatively low cost of labor or land.

    Establish a subsidiary in a market
    where the local currency is weak but is expected to appreciate over
    time.

    Establish subsidiaries in markets
    whose business cycles differ from those where existing subsidiaries are
    based.

1 points  

Question 4

  1.  

    If countries are highly influential upon each
    other, the correlations of their economic growth levels would likely be ____. A
    firm would benefit ____ by diversifying sales among these countries relative to
    another set of countries that were not influential upon each
    other.

    Answer

    high and positive;
    more

    close to zero;
    more

    high and positive;
    less

    close to zero;
    less

1 points  

Question 5

  1.  

    Assume a U.S. firm initiates direct foreign
    investment in the U.K. If the British pound is expected to appreciate against
    the dollar, the dollar value of earnings remitted to the parent should ____. The
    parent may request that the subsidiary ____ in order to benefit from the
    expectation about the pound.

    Answer

    increase; postpone remitting
    earnings until the pound strengthens

    decrease; postpone remitting
    earnings until the pound strengthens

    decrease; remit earnings
    immediately before the pound strengthens

    increase; remit earnings
    immediately before the pound
    strengthens

1 points  

Question 6

  1.  

    Constraints pertaining to taxes, currency
    convertibility, earnings remittance, and employee rights are best described
    as:

    Answer

    ethical
    differences.

    regulatory
    barriers.

    quota
    barriers.

    “Red Tape”
    barriers.

1 points  

Question 7

  1.  

    The ____ a project’s variability in cash
    flows, and the ____ the positive correlation between the project’s cash flow and
    the MNC’s cash flow, the lower the risk of the
    project.

    Answer

    higher;
    higher

    higher;
    lower

    lower;
    lower

    lower;
    higher

1 points  

Question 8

  1.  

    Assume that the government of Krusho requires
    bribes to approve certain projects. MNCs that attempt to do business in Krusho
    must deal with:

    Answer

    protective
    barriers.

    “red tape”
    barriers.

    ethical
    differences.

    regulatory
    barriers.

1 points  

Question 9

  1.  

    Procedural and documentation requirements
    imposed by the foreign government are referred to as:

    Answer

    regulatory
    barriers.

    industry
    barriers.

    protective
    barriers.

    “Red Tape”
    barriers.

1 points  

Question 10

  1.  

    Based on the text, it should be obvious that
    markets are ____ in reality, and consequently, monopolistic advantages ____ be
    exploited.

    Answer

    perfect; may
    possibly

    perfect;
    cannot

    imperfect; may
    possibly

    imperfect;
    cannot

1 points  

Question 11

  1.  

    ____ is not a cost-related motive for direct
    foreign investment.

    Answer

    Exploiting monopolistic
    advantages

    Fully benefiting from economies of
    scale

    Using foreign factors of
    production

    Using foreign raw
    materials

1 points  

Question 12

  1.  

    ____ is not a revenue-related motive for
    direct foreign investment.

    Answer

    Attracting new sources of
    demand

    Fully benefiting from economies of
    scale

    Exploiting monopolistic
    advantages

    Entering profitable
    markets

1 points  

Question 13

  1.  

    Which of the following is not a cost-related
    motive of direct foreign investment?

    Answer

    International
    diversification.

    Low labor
    costs.

    Land can be purchased at a low
    price.

    Manufacturing plants can be built
    for a low price.

1 points  

Question 14

  1.  

    Which of the following is not true regarding
    host government attitudes towards direct foreign investment
    (DFI)?

    Answer

    Host governments may offer
    incentives to MNCs in the form of subsidies in certain
    circumstances.

    Host governments generally perceive
    DFI as a remedy to eliminate a country’s political
    problems.

    The ability of a host government to
    attract DFI is dependent on the country’s markets and
    resources.

    Some types of DFI will be more
    attractive to some governments than to
    others.

1 points  

Question 15

  1.  

    To use foreign factors of production, an MNC
    should:

    Answer

    establish a subsidiary in a new
    market that can sell products produced elsewhere.

    establish a subsidiary in a market
    that has relatively low costs of labor or land.

    establish a subsidiary in a market
    where raw materials are cheap and accessible.

    participate in a joint venture in
    order to learn about a production process or other
    operations.

1 points  

Question 16

  1.  

    Like income tax treaties, ____ help to avoid
    double taxation and stimulate direct foreign
    investment.

    Answer

    withholding
    taxes

    excise
    taxes

    tax credits

    carryforwards

1 points  

Question 17

  1.  

    When assessing a German project administered
    by a German subsidiary of a U.S.-based MNC solely from the German subsidiary’s
    perspective, which variable will most likely influence the capital budgeting
    analysis?

    Answer

    the withholding tax
    rate.

    the euro’s exchange
    rate.

    the U.S. tax rate on earnings
    remitted to the U.S.

    the German government’s tax
    rate.

1 points  

Question 18

  1.  

    ____ is not a method of incorporating an
    adjustment for risk into the capital budgeting
    analysis.

    Answer

    Discriminant
    analysis

    Risk-adjusted discount
    rate

    Sensitivity
    analysis

    Simulation

1 points  

Question 19

  1.  

    The required rate of return of a project is
    ____ the MNC’s cost of capital.

    Answer

    greater
    than

    less than

    the same as

    any of the above, depending on the
    specific project

1 points  

Question 20

  1.  

    In capital budgeting analysis, the use of a
    cumulative NPV is useful for:

    Answer

    determining a probability
    distribution of NPVs.

    determining the time required to
    achieve a positive NPV.

    determining how the required rate
    of return changes over time.

    determining how the cost of capital
    changes over time.

1 points  

Question 21

  1.  

    When conducting a capital budgeting analysis
    and attempting to account for effects of exchange rate movements for a foreign
    project, inflation ____ included explicitly in the cash flow analysis, and debt
    payments by the subsidiary ____ included explicitly in the cash flow
    analysis.

    Answer

    should be; should
    be

    should definitely not be; should
    definitely not be

    should definitely not be; should
    be

    should be; should definitely not
    be

1 points  

Question 22

  1.  

    A foreign project generates a negative cash
    flow in year 1 and positive cash flows in years 2 through 5. The NPV for this
    project will be higher if the foreign currency ____ in year 1 and ____ in years
    2 through 5.

    Answer

    depreciates;
    depreciates

    appreciates;
    appreciates

    depreciates;
    appreciates

    appreciates;
    depreciates

1 points  

Question 23

  1.  

    A firm considers an exporting project and
    will invoice the exports in dollars. The expected cash flows in dollars would be
    more difficult if the currency of the foreign country is
    ____.

    Answer

    fixed

    volatile

    stable

    none of the above, as the firm is
    not exposed

1 points  

Question 24

  1.  

    One foreign project in Hungary and another in
    Japan had the same perceived value from the U.S. parent’s perspective. Then, the
    exchange rate expectations were revised, upward for the value of the Hungarian
    forint and downward for the Japanese yen. The break-even salvage value for the
    project in Japan would now be ____ from the parent’s
    perspective.

    Answer

    negative

    higher than that for the Hungarian
    project

    lower than that for the Hungarian
    project

    the same as that for the Hungarian
    project

1 points  

Question 25

  1.  

    A U.S.-based MNC has just established a
    subsidiary in Algeria. Shortly after the plant was built, the MNC determines
    that its exchange rate forecasts, which had previously indicated a slight
    appreciation in the Algerian dinar, were probably false. Instead of a slight
    appreciation, the MNC now expects that the dinar will depreciate substantially
    due to political turmoil in Algeria. This new development would likely cause the
    MNC to ____ its estimate of the previously computed net present
    value.

    Answer

    lower

    increase

    lower, but not necessarily if the
    MNC invests enough in Algeria to offset the decrease in
    NPV

    increase, but not necessarily if
    the MNC reduces its investment in Algeria by an offsetting
    amount

1 points  

Question 26

  1.  

    Assume an MNC establishes a subsidiary where
    it has no other existing business. The present value of parent cash flows from
    this subsidiary is more sensitive to exchange rate movements
    when:

    Answer

    the subsidiary finances the entire
    investment by local borrowing.

    the subsidiary finances most of
    the investment by local borrowing.

    the parent finances most of the
    investment.

    the parent finances the entire
    investment.

1 points  

Question 27

  1.  

    The break-even salvage value of a particular
    project is the salvage value necessary to:

    Answer

    offset any losses incurred by the
    subsidiary in a given year.

    offset any losses incurred by the
    MNC overall in a given year.

    make the project have zero
    profits.

    make the project’s return equal
    the required rate of return.

1 points  

Question 28

  1.  

    An international project’s NPV is ____
    related to the size of the initial investment and ____ related to the project’s
    required rate of return.

    Answer

    positively;
    positively

    positively;
    negatively

    negatively;
    positively

    negatively;
    negatively

1 points  

Question 29

  1.  

    An international project’s NPV is ____
    related to consumer demand and ____ related to the project’s salvage
    value.

    Answer

    positively;
    positively

    positively;
    negatively

    negatively;
    positively

    negatively;
    negatively

1 points  

Question 30

  1.  

    According to the text, in order to develop a
    distribution of possible net present values from international projects, a firm
    should use:

    Answer

    a risk-adjusted discount
    rate.

    a payback
    period.

    certainty
    equivalents.

    simulation.

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