International Financial Management Chapter 14
Study online at https://quizlet.com/_7kyii3
1. 1. If a U.S. parent is setting up a French subsidiary, and funds from the
subsidiary will be periodically sent to the parent, the ideal situation from the
parent's perspective is a ____ after the subsidiary is established.
a. strengthening euro
b. stable euro
c. weak euro
d. B and C are both ideal.: a. strengthening euro
2. 2. According to the text, in order to develop a distribution of possible net
present values from international projects, a firm should use:
a. a risk-adjusted discount rate.
b. a payback period.
c. certainty equivalents.
d. simulation.: a. a risk-adjusted discount rate.
3. 3. When evaluating international project cash flows, which of the following
factors is relevant?
a. future inflation
b. blocked funds
c. exchange rates
d. all of the above: d. all of the above
4. 4. In general, increased investment by the parent in the foreign subsidiary
causes more exchange rate exposure to the parent over time because the cash
flows remitted to the parent will be larger.
a. True b. False: a. True
5. 5. Blocked funds may penalize a project if the return on the forced reinvest-
ment in the foreign country is less than the required rate of return on the
project.
a. true
b. false: a. true
6. 6. When assessing a German project administered by a German subsidiary
of a U.S.-based MNC solely from the German subsidiary's perspective, which
variable will most likely influence the capital budgeting analysis?
a. the withholding tax rate
, International Financial Management Chapter 14
Study online at https://quizlet.com/_7kyii3
b. the euro's exchange rate
c. the U.S. tax rate on earnings remitted to the United States
d. the German government's tax rate
e. A and C: d. the German government's tax rate
7. 7. In capital budgeting analysis, the use of a cumulative NPV is useful for:
a. determining a probability distribution of NPVs.
b. determining the time required to achieve a positive NPV.
c. determining how the required rate of return changes over time.
d. determining how the cost of capital changes over time.
e. A and B: b. determining the time required to achieve a positive NPV.
8. 8. Assume the parent of a U.S.-based MNC plans to completely finance the es-
tablishment of its British subsidiary with existing funds from retained earnings
from U.S. operations. According to the text, the discount rate used in the capital
budgeting analysis on this project will be most affected by:
a. the cost of borrowing funds in the United Kingdom.
b. the economic conditions in the United Kingdom.
c. the parent's cost of capital.
d. A and B: c. the parent's cost of capital.
9. 9. Assume a U.S.-based MNC has a Chilean subsidiary that annually remits 30
million Chilean pesos to the United States. If the peso ____, the dollar amount
of remitted funds ____.
a. appreciates; decreases
b. depreciates; is unaffected
c. appreciates; is unaffected
d. depreciates; decreases
e. B and C: d. depreciates; decreases
10. 10. Assume an MNC establishes a subsidiary in a country where it has
no other existing business. The present value of parent cash flows from this
subsidiary is more sensitive to exchange rate movements when:
a. the subsidiary finances the entire investment by local borrowing.
b. the subsidiary finances most of the investment by local borrowing.
Study online at https://quizlet.com/_7kyii3
1. 1. If a U.S. parent is setting up a French subsidiary, and funds from the
subsidiary will be periodically sent to the parent, the ideal situation from the
parent's perspective is a ____ after the subsidiary is established.
a. strengthening euro
b. stable euro
c. weak euro
d. B and C are both ideal.: a. strengthening euro
2. 2. According to the text, in order to develop a distribution of possible net
present values from international projects, a firm should use:
a. a risk-adjusted discount rate.
b. a payback period.
c. certainty equivalents.
d. simulation.: a. a risk-adjusted discount rate.
3. 3. When evaluating international project cash flows, which of the following
factors is relevant?
a. future inflation
b. blocked funds
c. exchange rates
d. all of the above: d. all of the above
4. 4. In general, increased investment by the parent in the foreign subsidiary
causes more exchange rate exposure to the parent over time because the cash
flows remitted to the parent will be larger.
a. True b. False: a. True
5. 5. Blocked funds may penalize a project if the return on the forced reinvest-
ment in the foreign country is less than the required rate of return on the
project.
a. true
b. false: a. true
6. 6. When assessing a German project administered by a German subsidiary
of a U.S.-based MNC solely from the German subsidiary's perspective, which
variable will most likely influence the capital budgeting analysis?
a. the withholding tax rate
, International Financial Management Chapter 14
Study online at https://quizlet.com/_7kyii3
b. the euro's exchange rate
c. the U.S. tax rate on earnings remitted to the United States
d. the German government's tax rate
e. A and C: d. the German government's tax rate
7. 7. In capital budgeting analysis, the use of a cumulative NPV is useful for:
a. determining a probability distribution of NPVs.
b. determining the time required to achieve a positive NPV.
c. determining how the required rate of return changes over time.
d. determining how the cost of capital changes over time.
e. A and B: b. determining the time required to achieve a positive NPV.
8. 8. Assume the parent of a U.S.-based MNC plans to completely finance the es-
tablishment of its British subsidiary with existing funds from retained earnings
from U.S. operations. According to the text, the discount rate used in the capital
budgeting analysis on this project will be most affected by:
a. the cost of borrowing funds in the United Kingdom.
b. the economic conditions in the United Kingdom.
c. the parent's cost of capital.
d. A and B: c. the parent's cost of capital.
9. 9. Assume a U.S.-based MNC has a Chilean subsidiary that annually remits 30
million Chilean pesos to the United States. If the peso ____, the dollar amount
of remitted funds ____.
a. appreciates; decreases
b. depreciates; is unaffected
c. appreciates; is unaffected
d. depreciates; decreases
e. B and C: d. depreciates; decreases
10. 10. Assume an MNC establishes a subsidiary in a country where it has
no other existing business. The present value of parent cash flows from this
subsidiary is more sensitive to exchange rate movements when:
a. the subsidiary finances the entire investment by local borrowing.
b. the subsidiary finances most of the investment by local borrowing.
