PRIN.OF CORPORATE FINANCE >BI<
12th Edition
ISBN: 9781260431230
Author: BREALEY
Publisher: MCG CUSTOM
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Chapter 32, Problem 5PS
Summary Introduction
To determine: The disadvantages of traditional Country U conglomerate.
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Companies go global for various reasons. Although becoming a multinational corporation provides prospects for high returns and diversification, it makes financial management more complicated for financial executives and managers. Based on your understanding of the factors that complicate financial management in multinational firms, complete the following statement:
Compared to domestic corporations, multinational corporations have (increased or reduced) risk from exchange rate fluctuations.
Which of the following statements is CORRECT?
a. Most business in the U.S. is conducted by corporations, and corporations' popularity results primarily from their favorable tax treatment.
b. Corporations and partnerships have an advantage over proprietorships because a proprietor is exposed to unlimited liability, but the liability of all investors in the other types of businesses is more limited.
c. Conflicts can exist between stockholders and managers, but potential conflicts are reduced by the possibility of hostile takeovers.
d. A good goal for a firm's management is the maximization of expected EPS.
e. For a stock to be in equilibrium, its intrinsic value must be greater than the actual market price.
Which of the following statements is CORRECT?
a. A good goal for a rm's management is maximization of expected EPS.
b. Most business in the U.S. is conducted by corporations, and corporations' popularity resultsprimarily from their favorable tax treatment.
c. Because most stock ownership is concentrated in the hands of a relatively small segment ofsociety, rms' actions to maximize their stock prices have little benet to society.
d. Corporations and partnerships have an advantage over proprietorships because a sole proprietoris exposed to unlimited liability, but the liability of all investors in the other types of businesses ismore limited.
e. The potential exists for agency conicts between stockholders and managers.
Please explain.
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- All the following statements are incorrect about international equity markets except? a. In the international equity market, corporations cannot raise capital through IPOs, instead they can raise capital by trading in the secondary market. b. In the international equity market, corporations can easily manipulate the price of the shares since it is not regulated by any regulatory bodies. c. In the international equity market, corporations can only sell blocks of shares to Institutional investors from European Union. d. In the international equity market, corporations can sell blocks of shares to investors in a number of different countries simultaneously.arrow_forwardDiscuss the factors that affect the WACC. Also discuss how these factors may differ somewhat from country to country. For example, if a company has a stronger balance sheet than other companies in its industry, investors will likely be willing to accept a lower interest rates on its bonds and this will lower the company’s overall cost of capital.arrow_forwardHow is multinational financial management different from financial management as practicedby a firm that has no direct contacts with foreignfirms or customers? What special problems andchallenges do multinational firms face? Whatfactors cause companies to “go multinational”?arrow_forward
- 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_forwardThe Enterprise Value of a privately-owned firm is often discounted relative to their publicly-traded counterparts because: a. A privately-owned firm cannot be sold as easily as a publicly-traded firm. b. Employees will leave a privately-owned firm if sold. c. The use of bank debt by privately-owned firms is troubling. d. It is too difficult to calculate Enterprise Value for a privately-owned firm. e. None of the above.arrow_forwardAre there firms not subject to the capital market constraint? What types of firms/organizations are these? Can large corporations not be tied to capital markets? Don't answer by pen paper plzarrow_forward
- How does accounting theory address the challenges and complexities of multinational corporations, including issues related to currency translation, transfer pricing, and global financial reporting standards?arrow_forwardWhat is the impact of capital controls that restrict mobility of capital across nationalborders on domestic financial systems and the performance of the economy?arrow_forward
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