IBUS 401 Exam 3 UPDATED QUESTIONS
AND CORRECT ANSWERS
Which of the following is a reason to consider international business?
- economies of scale
- exploit monopolistic advantages
- diversification
- all of the above - CORRECT ANSWER all of the above
When a firm perceives that a foreign currency is _______, the firm may attempt direct foreign
investment in that country, as the initial outlay should be relatively _________.
- overvalued; high
- overvalued; low
- undervalued; high
- undervalued; low - CORRECT ANSWER undervalued; low
T/F: MNCs can probably achieve more desirable risk-return characteristics from their project
portfolios if they sufficiently diversify among products and geographical markets. - CORRECT
ANSWER true
When evaluating international project cash flows, which of the following factors is relevant
- future inflation
- blocked funds
- exchange rates
- all of the above - CORRECT ANSWER all of the above
A US-based MNC has just established a subsidiary in Algeria. Shortly after the plant was built, the
MNC determines that its exchange rate forecasts, which had previously indicated a slight appreciation
in the Algerian dinar, were probably false. Instead of a slight appreciation, the MNC now expects that
the dinar will depreciate substantially due to political turmoil in Algeria. This new development would
likely cause the MNC to _______ its estimate of the previously computed net present value.
- lower
- increase
, - lower, but not necessarily if the mNC invests enough in Algeria to offset the decrease in NPV
- increase, but not necessarily if the MNC reduces its investment in Algeria by an offsetting amount -
CORRECT ANSWER lower
Other tings being equal, firms from a particular home country will engage in more international
acquisitions if they expect foreign currencies to _______ against their home currency, and if their cost
of capital is relatively _________.
- appreciate; low
- appreciate; high
- depreciate; high
- depreciate; low - CORRECT ANSWER appreciate; low
An MNC's parent would consider investing in a target only if the estimated present value of the cash
flows it would ultimately receive from the target over time _____ the initial outlay necessary to
purchase the target.
- is less than
- is the same as
- is greater than
- none of the above - CORRECT ANSWER is greater than
An MNC valuing a foreign target for acquisition purposes must account fro all of the following
except:
- the foreign exchange rate
- withholding taxes imposed by the host government
- blocked-funds restrictions
- income taxes imposed by the US government
- an MNC must account for all of the above - CORRECT ANSWER An MNC must account
for all of the above
When quantifying country risk:
- weights should be equally allocated among factors
- weights should be assigned to the political and financial factors according to their perceived
importance
AND CORRECT ANSWERS
Which of the following is a reason to consider international business?
- economies of scale
- exploit monopolistic advantages
- diversification
- all of the above - CORRECT ANSWER all of the above
When a firm perceives that a foreign currency is _______, the firm may attempt direct foreign
investment in that country, as the initial outlay should be relatively _________.
- overvalued; high
- overvalued; low
- undervalued; high
- undervalued; low - CORRECT ANSWER undervalued; low
T/F: MNCs can probably achieve more desirable risk-return characteristics from their project
portfolios if they sufficiently diversify among products and geographical markets. - CORRECT
ANSWER true
When evaluating international project cash flows, which of the following factors is relevant
- future inflation
- blocked funds
- exchange rates
- all of the above - CORRECT ANSWER all of the above
A US-based MNC has just established a subsidiary in Algeria. Shortly after the plant was built, the
MNC determines that its exchange rate forecasts, which had previously indicated a slight appreciation
in the Algerian dinar, were probably false. Instead of a slight appreciation, the MNC now expects that
the dinar will depreciate substantially due to political turmoil in Algeria. This new development would
likely cause the MNC to _______ its estimate of the previously computed net present value.
- lower
- increase
, - lower, but not necessarily if the mNC invests enough in Algeria to offset the decrease in NPV
- increase, but not necessarily if the MNC reduces its investment in Algeria by an offsetting amount -
CORRECT ANSWER lower
Other tings being equal, firms from a particular home country will engage in more international
acquisitions if they expect foreign currencies to _______ against their home currency, and if their cost
of capital is relatively _________.
- appreciate; low
- appreciate; high
- depreciate; high
- depreciate; low - CORRECT ANSWER appreciate; low
An MNC's parent would consider investing in a target only if the estimated present value of the cash
flows it would ultimately receive from the target over time _____ the initial outlay necessary to
purchase the target.
- is less than
- is the same as
- is greater than
- none of the above - CORRECT ANSWER is greater than
An MNC valuing a foreign target for acquisition purposes must account fro all of the following
except:
- the foreign exchange rate
- withholding taxes imposed by the host government
- blocked-funds restrictions
- income taxes imposed by the US government
- an MNC must account for all of the above - CORRECT ANSWER An MNC must account
for all of the above
When quantifying country risk:
- weights should be equally allocated among factors
- weights should be assigned to the political and financial factors according to their perceived
importance
