CreatedcBy:cAcSolution
Solution Manual For International Financial Management, 14
c c c c c c
th Edition by Jeff Madura | Complete Verified Chapter’s 2024
c c c c c c c c c c
A+
Chapterc1
MultinationalcFinancialcManagement:cAncOverview
LecturecOutline
ManagingcthecMNC
HowcBusinesscDisciplinescArecUsedctocManagecthecMNCcAgencycProblems
ManagementcStructurecofcancMNC
WhycFirmscPursuecInternationalcBusinesscTheorycofcComparativecAdvantagecImperfectcMarketscT
heory
ProductcCyclecTheory
MethodsctocConductcInternationalcBusiness
InternationalcTradecLicensingcFranchising
JointcVentures
AcquisitionscofcExistingcOperationscEstablishingcNewcForeigncSubsidiariescSummarycofcMethods
ValuationcModelcforcancMNCcDomesticcValuationcModelcMultinationalcValuationcModel
UncertaintycSurroundingcancMNC’scCashcFlowscHowcUncertaintycAffectscthecMNC’scCostcofcCapi
tal
OrganizationcofcthecText
c
ChaptercTheme
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,CreatedcBy:cAcSolution
Thiscchaptercintroducescthecmultinationalccorporationcaschavingcsimilarcgoalsctocthecpurelycdomesti
cccorporation,cbutcacwidercvarietycofcopportunities.cWithcadditionalcopportunitiesccomecpotentialcin
creasedcreturnscandcothercformscofcriskctocconsider.cThecpotentialcbenefitscandcriskscarecintroduced.
TopicsctocStimulatecClasscDiscussion
1. WhatciscthecappropriatecdefinitioncofcancMNC?
2. WhycdoescancMNCcexpandcinternationally?
3. WhatcarecthecriskscofcancMNCcwhichcexpandscinternationally?
4. Whycmustcpurelycdomesticcfirmscbecconcernedcaboutcthecinternationalcenvironment?
POINT/COUNTER-POINT:
ShouldcancMNCcReducecItscEthicalcStandardsctocCompetecInternationally?
POINT:cYes.cWhencacU.S.-
basedcMNCccompetescincsomeccountries,citcmaycencountercsomecbusinesscnormsctherecthatcarecnotca
llowedcincthecU.S.cForcexample,cwhenccompetingcforcacgovernmentccontract,cfirmscmightcprovidecpa
yoffsctocthecgovernmentcofficialscwhocwillcmakecthecdecision.cYet,cincthecUnitedcStates,cacfirmcwillcs
ometimesctakecacclientconcancexpensivecgolfcoutingcorcprovidecskyboxcticketsctocevents.cThisciscnocdi
fferentcthancacpayoff.cIfcthecpayoffscarecbiggercincsomecforeignccountries,cthecMNCccanccompeteconl
ycbycmatchingcthecpayoffscprovidedcbycitsccompetitors.
COUNTER-POINT:cNo.cAcU.S.-
basedcMNCcshouldcmaintaincacstandardccodecofcethicscthatcappliesctocanyccountry,cevencifcitciscatcacdi
sadvantagecincacforeignccountrycthatcallowscactivitiescthatcmightcbecviewedcascunethical.cIncthiscway,
thecMNCcestablishescmoreccredibilitycworldwide.
c
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,CreatedcBy:cAcSolution
WHOcIScCORRECT?cUsecthecInternetctoclearncmorecaboutcthiscissue.cWhichcargumentcdocyoucsupp
ort?cOffercyourcowncopinionconcthiscissue.
ANSWER:cThecissueciscfrequentlycdiscussed.cItcisceasyctocsuggestcthatcthecMNCcshouldcmaintaincacs
tandardccodecofcethics,cbutcincreality,cthatcmeanscthatcitcwillcnotcbecablectoccompetecincsomeccases.cFo
rcexample,cevencifcitcsubmitsctheclowestcbidconcacspecificcforeigncgovernmentcproject,citcwillcnotcrece
ivecthecbidcwithoutcacpayoffctocthecforeigncgovernmentcofficials.cThecissueciscespeciallycacconcerncfo
rclargecprojectscthatcmaycgeneratecsubstantialccashcflowscforcthecfirmcthatciscchosenctocdocthecproject.c
Ideally,cthecMNCccancclearlycdemonstratectocwhoevercoverseescthecdecisioncprocesscthatcitcdeserves
tocbecselected.cIfcthereciscjustconecdecision-
c
makercwithcnocoversight,cancMNCccancnotcensurecthatcthecdecisioncwillcbecethical.cButcifcthecdecisio
n-
makercmustcbecaccountablectocacdepartmentcwhocoverseescthecdecision,cthecMNCcmaycbecablectocpro
mptcthecdepartmentctocensurecthatcthecprocessciscethical.
c
AnswersctocEndcofcChaptercQuestions
1. AgencycProblemscofcMNCs.
a. ExplaincthecagencycproblemcofcMNCs.
ANSWER:cThecagencycproblemcreflectscacconflictcofcinterestscbetweencdecision-
makingcmanagerscandcthecownerscofcthecMNC.cAgencyccostscoccurcincanceffortctocassurecthatcmanag
erscactcincthecbestcinterestcofcthecowners.
b. WhycmightcagencyccostscbeclargercforcancMNCcthancforcacpurelycdomesticcfirm?
ANSWER:cThecagencyccostscarecnormallyclargercforcMNCscthancpurelycdomesticcfirmscforcthecfollo
wingcreasons.cFirst,cMNCscincurclargercagencyccostscincmonitoringcmanagerscofcdistantcforeigncsub
sidiaries.cSecond,cforeigncsubsidiarycmanagerscraisedcincdifferentcculturescmaycnotcfollowcuniformc
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goals,candcsomecmanagerscmaycfocusconcsatisfyingcrespectivecemployees.cThird,cthecsheercsizecofcth
eclargercMNCscwouldcalsoccreateclargecagencycproblems.
2. ComparativecAdvantage.
a.
Explainchowcthectheorycofccomparativecadvantagecrelatesctocthecneedcforcinternationalcbusin
ess.
ANSWER:cThectheorycofccomparativecadvantagecimpliescthatccountriescshouldcspecializecincproduc
tion,ctherebycrelyingconcotherccountriescforcsomecproducts.cConsequently,cthereciscacneedcforcinterna
tionalcbusiness.
b. ExplainchowcthecproductccyclectheorycrelatesctocthecgrowthcofcancMNC.
ANSWER:cThecproductccyclectheorycsuggestscthatcatcsomecpointcinctime,cthecfirmcwillcattemptctocca
pitalizeconcitscperceivedcadvantagescincmarketscothercthancwherecitcwascinitiallycestablished.
3. ImperfectcMarkets.
a.
Explainchowcthecexistencecofcimperfectcmarketschascledctocthecestablishmentcofcsubsidiariesc
incforeigncmarkets.
ANSWER:cBecausecofcimperfectcmarkets,cresourcesccannotcbeceasilycandcfreelycretrievedcbycthecM
NC.cConsequently,cthecMNCcmustcsometimescgoctocthecresourcescrathercthancretrievecresourcesc(su
chcascland,clabor,cetc.).
b.
Ifcperfectcmarketscexisted,cwouldcwages,cprices,candcinterestcratescamongccountriescbecmorec
similarcorclesscsimilarcthancundercconditionscofcimperfectcmarkets?cWhy?
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Solution Manual For International Financial Management, 14
c c c c c c
th Edition by Jeff Madura | Complete Verified Chapter’s 2024
c c c c c c c c c c
A+
Chapterc1
MultinationalcFinancialcManagement:cAncOverview
LecturecOutline
ManagingcthecMNC
HowcBusinesscDisciplinescArecUsedctocManagecthecMNCcAgencycProblems
ManagementcStructurecofcancMNC
WhycFirmscPursuecInternationalcBusinesscTheorycofcComparativecAdvantagecImperfectcMarketscT
heory
ProductcCyclecTheory
MethodsctocConductcInternationalcBusiness
InternationalcTradecLicensingcFranchising
JointcVentures
AcquisitionscofcExistingcOperationscEstablishingcNewcForeigncSubsidiariescSummarycofcMethods
ValuationcModelcforcancMNCcDomesticcValuationcModelcMultinationalcValuationcModel
UncertaintycSurroundingcancMNC’scCashcFlowscHowcUncertaintycAffectscthecMNC’scCostcofcCapi
tal
OrganizationcofcthecText
c
ChaptercTheme
A+ Pagec1
,CreatedcBy:cAcSolution
Thiscchaptercintroducescthecmultinationalccorporationcaschavingcsimilarcgoalsctocthecpurelycdomesti
cccorporation,cbutcacwidercvarietycofcopportunities.cWithcadditionalcopportunitiesccomecpotentialcin
creasedcreturnscandcothercformscofcriskctocconsider.cThecpotentialcbenefitscandcriskscarecintroduced.
TopicsctocStimulatecClasscDiscussion
1. WhatciscthecappropriatecdefinitioncofcancMNC?
2. WhycdoescancMNCcexpandcinternationally?
3. WhatcarecthecriskscofcancMNCcwhichcexpandscinternationally?
4. Whycmustcpurelycdomesticcfirmscbecconcernedcaboutcthecinternationalcenvironment?
POINT/COUNTER-POINT:
ShouldcancMNCcReducecItscEthicalcStandardsctocCompetecInternationally?
POINT:cYes.cWhencacU.S.-
basedcMNCccompetescincsomeccountries,citcmaycencountercsomecbusinesscnormsctherecthatcarecnotca
llowedcincthecU.S.cForcexample,cwhenccompetingcforcacgovernmentccontract,cfirmscmightcprovidecpa
yoffsctocthecgovernmentcofficialscwhocwillcmakecthecdecision.cYet,cincthecUnitedcStates,cacfirmcwillcs
ometimesctakecacclientconcancexpensivecgolfcoutingcorcprovidecskyboxcticketsctocevents.cThisciscnocdi
fferentcthancacpayoff.cIfcthecpayoffscarecbiggercincsomecforeignccountries,cthecMNCccanccompeteconl
ycbycmatchingcthecpayoffscprovidedcbycitsccompetitors.
COUNTER-POINT:cNo.cAcU.S.-
basedcMNCcshouldcmaintaincacstandardccodecofcethicscthatcappliesctocanyccountry,cevencifcitciscatcacdi
sadvantagecincacforeignccountrycthatcallowscactivitiescthatcmightcbecviewedcascunethical.cIncthiscway,
thecMNCcestablishescmoreccredibilitycworldwide.
c
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,CreatedcBy:cAcSolution
WHOcIScCORRECT?cUsecthecInternetctoclearncmorecaboutcthiscissue.cWhichcargumentcdocyoucsupp
ort?cOffercyourcowncopinionconcthiscissue.
ANSWER:cThecissueciscfrequentlycdiscussed.cItcisceasyctocsuggestcthatcthecMNCcshouldcmaintaincacs
tandardccodecofcethics,cbutcincreality,cthatcmeanscthatcitcwillcnotcbecablectoccompetecincsomeccases.cFo
rcexample,cevencifcitcsubmitsctheclowestcbidconcacspecificcforeigncgovernmentcproject,citcwillcnotcrece
ivecthecbidcwithoutcacpayoffctocthecforeigncgovernmentcofficials.cThecissueciscespeciallycacconcerncfo
rclargecprojectscthatcmaycgeneratecsubstantialccashcflowscforcthecfirmcthatciscchosenctocdocthecproject.c
Ideally,cthecMNCccancclearlycdemonstratectocwhoevercoverseescthecdecisioncprocesscthatcitcdeserves
tocbecselected.cIfcthereciscjustconecdecision-
c
makercwithcnocoversight,cancMNCccancnotcensurecthatcthecdecisioncwillcbecethical.cButcifcthecdecisio
n-
makercmustcbecaccountablectocacdepartmentcwhocoverseescthecdecision,cthecMNCcmaycbecablectocpro
mptcthecdepartmentctocensurecthatcthecprocessciscethical.
c
AnswersctocEndcofcChaptercQuestions
1. AgencycProblemscofcMNCs.
a. ExplaincthecagencycproblemcofcMNCs.
ANSWER:cThecagencycproblemcreflectscacconflictcofcinterestscbetweencdecision-
makingcmanagerscandcthecownerscofcthecMNC.cAgencyccostscoccurcincanceffortctocassurecthatcmanag
erscactcincthecbestcinterestcofcthecowners.
b. WhycmightcagencyccostscbeclargercforcancMNCcthancforcacpurelycdomesticcfirm?
ANSWER:cThecagencyccostscarecnormallyclargercforcMNCscthancpurelycdomesticcfirmscforcthecfollo
wingcreasons.cFirst,cMNCscincurclargercagencyccostscincmonitoringcmanagerscofcdistantcforeigncsub
sidiaries.cSecond,cforeigncsubsidiarycmanagerscraisedcincdifferentcculturescmaycnotcfollowcuniformc
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, CreatedcBy:cAcSolution
goals,candcsomecmanagerscmaycfocusconcsatisfyingcrespectivecemployees.cThird,cthecsheercsizecofcth
eclargercMNCscwouldcalsoccreateclargecagencycproblems.
2. ComparativecAdvantage.
a.
Explainchowcthectheorycofccomparativecadvantagecrelatesctocthecneedcforcinternationalcbusin
ess.
ANSWER:cThectheorycofccomparativecadvantagecimpliescthatccountriescshouldcspecializecincproduc
tion,ctherebycrelyingconcotherccountriescforcsomecproducts.cConsequently,cthereciscacneedcforcinterna
tionalcbusiness.
b. ExplainchowcthecproductccyclectheorycrelatesctocthecgrowthcofcancMNC.
ANSWER:cThecproductccyclectheorycsuggestscthatcatcsomecpointcinctime,cthecfirmcwillcattemptctocca
pitalizeconcitscperceivedcadvantagescincmarketscothercthancwherecitcwascinitiallycestablished.
3. ImperfectcMarkets.
a.
Explainchowcthecexistencecofcimperfectcmarketschascledctocthecestablishmentcofcsubsidiariesc
incforeigncmarkets.
ANSWER:cBecausecofcimperfectcmarkets,cresourcesccannotcbeceasilycandcfreelycretrievedcbycthecM
NC.cConsequently,cthecMNCcmustcsometimescgoctocthecresourcescrathercthancretrievecresourcesc(su
chcascland,clabor,cetc.).
b.
Ifcperfectcmarketscexisted,cwouldcwages,cprices,candcinterestcratescamongccountriescbecmorec
similarcorclesscsimilarcthancundercconditionscofcimperfectcmarkets?cWhy?
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