Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
14th Edition
ISBN: 9780133508079
Author: Gitman
Publisher: PEARSON
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Chapter 19.4, Problem 19.12RQ
Summary Introduction
To determine: The long-run benefits of having many local debt and lower MNC-based equity in the capital structure of a foreign subsidiary
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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
Question:2 , Which of the following factors are likely to decrease the weighted average cost of capital for a multinational corporation compared to a domestic firm?
Check all that apply:
Exposure to country risk
International diversification
Exposure to exchange rate risk
Access to international capital markets
Large size
Submit.............
Give typing answer with explanation and conclusion
Which of the following is an example of foreign exchange risk for an MNC?
a. Foreign subsidiary of the MNC may face higher tarriffs b. Foreign subsidiary of the MNC may have to pay higher taxes c. Foreign subsidiary of the MNC may make less sales due to weak foreign currency d. Foreign subsidiary of the MNC may make less sales due to lower consumer income
Chapter 19 Solutions
Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
Ch. 19.1 - Prob. 19.1RQCh. 19.1 - Prob. 19.2RQCh. 19.1 - Prob. 19.3RQCh. 19.1 - Prob. 19.4RQCh. 19.2 - Under FASB No. 52, what are the translation rules...Ch. 19.3 - Prob. 19.6RQCh. 19.3 - Explain how differing inflation rates between two...Ch. 19.3 - Discuss macro and micro political risk. What is...Ch. 19.3 - Prob. 1FOECh. 19.4 - Prob. 1GF
Ch. 19.4 - Prob. 19.9RQCh. 19.4 - Prob. 19.10RQCh. 19.4 - Prob. 19.11RQCh. 19.4 - Prob. 19.12RQCh. 19.5 - Prob. 19.13RQCh. 19.5 - Prob. 19.14RQCh. 19.5 - Prob. 19.15RQCh. 19.6 - Prob. 19.16RQCh. 19 - Prob. 1ORCh. 19 - Prob. 19.1WUECh. 19 - Prob. 19.2WUECh. 19 - Prob. 19.3WUECh. 19 - Prob. 19.4WUECh. 19 - Prob. 19.5WUECh. 19 - Prob. 19.1PCh. 19 - Prob. 19.2PCh. 19 - Prob. 19.3PCh. 19 - ETHICS PROBLEM Is there a conflict between...
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- Which of the following does NOT refer to the ways of how a multinational company can reduce political risk? Taking a conservative approach to investment and adjusting NPV of the project by reducing expected cash flows or by increasing the cost of capital in accordance with existing trends. Purchasing insurance policy against political risks. Acquiring minor shares in foreign corporations. Creating a joint venture with local partners or a consortium with other multinational companies.arrow_forwardDetermine the key reasons why a multinational corporation might decide to borrow in a country such as Brazil, where interest rates are high, rather than in a country like Switzerland, where interest rates are low. Provide support for your rationale. What impact does foreign investment have on the weighted average cost of capital calculations?arrow_forwardWhich of the following factors is not expected to generally have a favorable impact on the firm's cost of capital? Group of answer choices easy access to international capital markets. high degree of international diversification. high exposure to exchange rate fluctuations. all of thesearrow_forward
- To create the global capital structure in a MNC, the business must ________. A. diversify to the oversea markets B. increasing its subsidiary's capital structure C. consolidate all of the foreign subsidiaries' capital structure D. expand competition to the other countriesarrow_forwardWhat are the circumstances under which the capital expenditure of a foreign subsidiary might have a positive NPV in local currency terms but be unprofitable from the parent firm’s perspective?arrow_forwardAre there international differences in firms’ financial leverage?Explain.arrow_forward
- How do you think the international equity market might benefit Malaysian firms? Is there any potential downside to multinational companies (MNC) in Malaysia from more international equity market?arrow_forwardWhat modifications may be made to the domestic cost of capital for a foreign venture to account for currency rate and political risk?arrow_forwardIn general, MNCs probably prefer to use ____ foreign debt when their foreign subsidiaries are subject to ____ local interest rates. Group of answer choices more; low more; high less; low B and C none of thesearrow_forward
- The foreign subsidiary of a U.S. firm is profitable when profits are measured in the foreign currency but those profits become losses when measured in U.S. dollars. This is an example of which one of the following? A. Interest rate disparities B. Short-run exposure to exchange rate risk C. Long-run exposure to exchange rate risk D. Political risk associated with the foreign operations E. Translation exposure to exchange rate riskarrow_forwardHow can the Greater Liberalizations and removal of barrier to trade can stimulate FDI that can incentivise firms to invest overseasarrow_forwardHow may the domestic cost of capital for a foreign venture be adjusted to account for currency rate risk, political risk, and nation risk?arrow_forward
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