International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Which of the following is matter if a U.S. parent firm plans to completely finance the establishment of its British subsidiary with existing funds from retained earnings. The discount rate of the NPV from the project would be affected by ______.
A.
the parent's cost of capital
B.
the sales volume of the subsidiary
C.
the economic conditions
D.
the cost of borrowing
Cloth plc has estimated the potential cash flows that would arise if they were successful in taking over one of their French customers, Trendy Limited. Following the proposed takeover, Trendy Limited would become Cloth (France), a subsidiary of Cloth plc.Cloth (France)’s functional currency would be the Euro. The estimated cash flows for the project are given below and management considers that a discount rate of 10% reflects the riskiness of the project. Cloth plc is planning to repatriate all net cash flows generated by the subsidiary at the end of each year in the form of an annual dividend payment. Year 0 Year 1 Year 2 Year 3
Total cash inflows (Euro million) 0 30 22 21Total cash outflows (Euro million) 30 16…
MCL is an Oman based company and engaging in hospitality industry, across the Sultanate. BDM is
responsible to take decisions under the capital rationing circumstances. MCL has the following
equipment to be purchased for the next budged period:
Project
Initial Investment
NPV
CF
1350000
250000
BG
750000
140000
BD
550000
190000
UB
550000
80000
a) Rank the projects based on the Profitability Index and make recommendations on initial
findings. Calculate the total initial capital required for the above combination* (addition of initial
investments) and assume always your higher management will approve you 20% less than the
required capital.
b) Calculate the maximum possible NPV as perthe initial ranking assuming that all projects
are infinitely divisible.
c) When the projects are not infinitely divisible, Calculate the Weighted Average Profitability index
(WAPI) separately for THREE options (Options are from your own choice).
多 d)
Select the best option from the part -Cabove with your…
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- Pulaski Inc. wants to establish a new subsidiary in Colombia that will sell cell phones to Colombian customers and remit earnings back to the U.S. parent. The value of this project will be favorably affected if the value of the peso ____ while it establishes the new subsidiary and ____ when the subsidiary starts operations. appreciates; appreciates depreciates; appreciates appreciates; depreciates depreciates; depreciatesarrow_forwardWhich of the following statements regarding forfaiting is/are accurate? A. The costs associated with forfaiting are often higher than conventional financing B. Forfaiting is typically a short-term transaction, less than one year C. Forfaiting is readily available to small businesses D. Forfaiting eliminates commercial, political, and foreign exchange risks E. Both a and d are accurate In international trade disputes, this ADR relies on a third-party doing their analysis alone and imposing a binding decision A. Arbitration B. Mediation C. Litigation D. Conciliationarrow_forward(6)(a)Identify the revenue and cost related motives for direct foreign investment. (b)Suppose a U.S. based MNC plans to invest in a new plant either in the U.S or in Zambia. The MNC intends to invest 30% of its investment spending in this new plant while the remainder is devoted to the firm's existing structure in the U.S. The characteristics of the proposed new project are given below: If located in U.S If located in Zambia Mean expected annual returns on investment 25% 25% Standard deviation of expected annual returns on investment 0.09 0.11 Correlation of expected annual returns on investment with returns on prevailing U.S business 0.80 -0.05 Determine, with robust quantitative explanation, which location will best provide the firm with a more stable flow of revenue.arrow_forward
- Discuss factors that must be considered for capital budgeting for an MNC’s foreign subsidiary that might not be considered for domestic investmentarrow_forwardSuppose that Kittle Co. is a U.S. based MNC that is considering setting up a subsidiary in Singapore. Kittle would like this subsidiary to produce and sell guitars locally in Singapore, and needs assistance with capital budgeting. The duration of this project is four years, with an initial investment of S$20,000,000 (Singapore dollars). Kittle managers have conducted a capital budgeting analysis with the assumption that the exchange rate will be $0.50 over the life of the project. However, Kittle management acknowledges the possibility that the value of the Singapore dollar will fluctuate over time. To that end, Kittle is considering two alternative scenarios: one in which the Singapore dollar is strong relative to the U.S. dollar and one in which the Singapore dollar is weak against the U.S. dollar. The following table shows one section of Kittle's capital budgeting analysis, under the scenario where the Singapore dollar is strong relative to the U.S. dollar. Complete row 22 of the…arrow_forwardCarpet Baggers, Incorporated, is proposing to construct a new bagging plant in a country in Europe. The two prime candidates are Germany and Switzerland. The forecasted cash flows from the proposed plants are as follows: Candidates Germany (millions of euros) Switzerland (millions of Swiss francs) -63 -106 C1 +13 +23 a. Net present value b. Net present value c. Should the company go ahead with either project? d. If it must choose between them, which should it take? C₂ +18 +33 C3 +18 +33 Yes Swiss plant C4 +23 +38 C5 +23 +38 The spot exchange rate for euros is EUR/USD = 1.33, while the rate for Swiss francs is USD/CHF = 1.53. The interest rate is 4% in the United States, 3% in Switzerland, and 5% in the euro countries. The financial manager has suggested that, if the cash flows were stated in dollars, a return in excess of 9% would be acceptable. million million C6 +23 +38 a. Calculate the NPV in dollars for the German plant. Note: Do not round intermediate calculations. Enter your…arrow_forward
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