Solution manual for international financial management 15th edition by jeff madura/ Covering Chapters 1-20/Latest 2025 Edition

Chapter 1
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,Multinational Financial Management: An Overview xx xx x x xx




Lecture Outline xx




Managing the MNC xx xx


How Business Disciplines Are Used to Manage the MNC
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Agency Problems xx


Management Structure of an MNC xx xx xx xx




Why Firms Pursue International Business
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Theory of Comparative Advantage Imper
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fect Markets Theory
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Product Cycle Theory xx xx




Methods to Conduct International Business
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International Trade xx xx


Licensing Franchisin xx


g
Joint Ventures xx


Acquisitions of Existing Operations E xx xx xx xx


stablishing New Foreign Subsidiaries xx xx xx xx


Summary of Methods xx xx




Valuation Model for an MNC Domes xx xx xx xx xx


tic Valuation Model Multinational Val
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uation Model xx


Uncertainty Surrounding an MNC’s Cash Flows H xx xx xx xx xx xx


ow Uncertainty Affects the MNC’s Cost of Capital
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Organization of the Text xx xx xx




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, Multinational Financial Management: An Overview  2 xx xx xx xx xx xx




Chapter Theme xx




This chapter introduces the multinational corporation as having similar goals to the purely domestic corpo
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ration, but a wider variety of opportunities. With additional opportunities come potential increased return
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s and other forms of risk to consider. The potential benefits and risks are introduced.
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Topics to Stimulate Class Discussionxx xx xx xx




1. What is the appropriate definition of an MNC?
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2. Why does an MNC expand internationally?
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3. What are the risks of an MNC which expands internationally?
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4. Why must purely domestic firms be concerned about the international environment?
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POINT/COUNTER-POINT:
Should an MNC Reduce Its Ethical Standards to Compete Internationally?
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POINT: Yes. When a U.S.- xx x x xx xx


based MNC competes in some countries, it may encounter some business norms there that are not al
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lowed in the U.S. For example, when competing for a government contract, firms might provide pay
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offs to the government officials who will make the decision. Yet, in the United States, a firm will so
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metimes take a client on an expensive golf outing or provide skybox tickets to events. This is no dif
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ferent than a payoff. If the payoffs are bigger in some foreign countries, the MNC can compete only
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by matching the payoffs provided by its competitors.
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COUNTER-POINT: No. A U.S.- x x xx xx


based MNC should maintain a standard code of ethics that applies to any country, even if it is at a d
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isadvantage in a foreign country that allows activities that might be viewed as unethical. In this way,
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xthe MNC establishes more credibility worldwide.
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WHO IS CORRECT? Use the Internet to learn more about this issue. Which argument do you suppo
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rt? Offer your own opinion on this issue.
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ANSWER: The issue is frequently discussed. It is easy to suggest that the MNC should maintain a st
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andard code of ethics, but in reality, that means that it will not be able to compete in some cases. Fo
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r example, even if it submits the lowest bid on a specific foreign government project, it will not rece
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ive the bid without a payoff to the foreign government officials. The issue is especially a concern for
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large projects that may generate substantial cash flows for the firm that is chosen to do the project.
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Ideally, the MNC can clearly demonstrate to whoever oversees the decision process that it deserves t
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o be selected. If there is just one decision-
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maker with no oversight, an MNC can not ensure that the decision will be ethical. But if the decisio
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n-
maker must be accountable to a department who oversees the decision, the MNC may be able to pro
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mpt the department to ensure that the process is ethical.
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, Multinational Financial Management: An Overview  3 xx xx xx xx xx xx




Answers to End of Chapter Questions
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1. Agency Problems of MNCs. xx xx xx




a. Explain the agency problem of MNCs. xx xx xx xx xx




ANSWER: The agency problem reflects a conflict of interests between decision-
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making managers and the owners of the MNC. Agency costs occur in an effort to assure that
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managers act in the best interest of the owners.
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b. Why might agency costs be larger for an MNC than for a purely domestic firm?
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ANSWER: The agency costs are normally larger for MNCs than purely domestic firms for the
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following reasons. First, MNCs incur larger agency costs in monitoring managers of distant fore
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ign subsidiaries. Second, foreign subsidiary managers raised in different cultures may not follow
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uniform goals, and some managers may focus on satisfying respective employees. Third, the sh
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eer size of the larger MNCs would also create large agency problems.
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2. Comparative Advantage. xx




a. Explain how the theory of comparative advantage relates to the need for international business.
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ANSWER: The theory of comparative advantage implies that countries should specialize in pro
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duction, thereby relying on other countries for some products. Consequently, there is a need for
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international business.
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b. Explain how the product cycle theory relates to the growth of an MNC.
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ANSWER: The product cycle theory suggests that at some point in time, the firm will attempt to
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capitalize on its perceived advantages in markets other than where it was initially established.
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3. Imperfect Markets. xx




a. Explain how the existence of imperfect markets has led to the establishment of subsidiarie
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s in foreign markets.
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ANSWER: Because of imperfect markets, resources cannot be easily and freely retrieved by
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the MNC. Consequently, the MNC must sometimes go to the resources rather than retrieve r
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esources (such as land, labor, etc.).
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b. If perfect markets existed, would wages, prices, and interest rates among countries be m
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ore similar or less similar than under conditions of imperfect markets? Why?
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ANSWER: If perfect markets existed, resources would be more mobile and could therefore be tr
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ansferred to those countries more willing to pay a high price for them. As this occurred, shorta
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ges of resources in any particular country would be alleviated and the costs of such resources w
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ould be similar across countries.
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4. International Opportunities. xx




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