IBUS 401 Exam 3 Study Questions with Detailed
Answers Updated 2025
According to the text, the most appropriate method of incorporating country risk into
capital budgeting analysis is to: - Answer-estimate the effect of each form of country risk
on cash flows
/.When quantifying country risk - Answer-weights should be assigned to the political and
financial factors according to their perceived importance
/.Country risk assessment should be used when:
(a) determining whether to establish a subsidiary in a foreign country
(b) determining whether to continue business in a foreign country
(c) A and B
(d) none of the above - Answer-(c) A and B
/.According to the text, a firm may be able to achieve a "more efficient" project portfolio,
moving the available project frontier out, if it :
(a) focuses solely on one product
(b) focuses solely on one location to market what it produces
(c) A and B
(d) none of the above - Answer-(d) none of the above
/.According to the information in the text, a host gov't would be least likely to provide
incentives for direct foreign investment (DFI) into its country if the firm planning DFI: -
Answer-would compete with local firms of the host country
/.Which of the following is a reason to consider international business?(a) economies of
scale
(b) exploit monopolistic advantages
(c) diversification
(d) all of the above - Answer-(d) all of the above
/.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 - Answer-strengthening euro
/.Assume an MNC establishes a subsidiary 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: - Answer-the parent finances the entire investment
/.Other things being equal, firms from a particular home country will engage in more
international acquisitions if they expect a foreign currencies to _____ against their home
currency, and if their costs of capital is relatively ______ - Answer-appreciate; low
, /.A previously undertaken project in a foreign country may no longer be feasible
because:
(a) interest rates have declined
(b) the MNC's cost of capital has decreased
(c) the host gov't has increased its tax rates substantially
(d) exchange rate projections changed from a depreciation to an appreciation of the
foreign currency - Answer-(c) the host gov't has increased its tax rates substantially
/.T/F:From an acquirer's perspective, the ideal conditions would be a weak foreign
currency at the time of acquisition and a strengthening of the foreign currency over time
as funds are remitted back to the parent - Answer-True
/.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 - Answer-is greater than
/.T/F:An international acquisition may be preferable to the establishment of a new
subsidiary because the firm can immediately expand it's international business and
benefit from existing customer relationships - Answer-True
/.T/F:At present, U.S. firms acquire more targets in the former Soviet Union than in any
other country - Answer-False
/.Assume the gov't of Krusho requires bribes to approve certain projects. MNCs that
attempt to do business in Krusho must deal with:(a) protective barriers
(b) "red tape" barriers
(c) ethical differences
(d) regulatory barriers - Answer-(c) ethical differences
/.According to the text, MNCs can:
(a) use only debt financing in foreign countries to support foreign subsidiaries
(b) use only equity financing in foreign countries to support foreign subsidiaries
(c) use only parent financing in foreign countries to support foreign subsidiaries
(d) none of the above - Answer-(d) none of the above
/.The ____ an MNC, the _____ its cost of capital is likely to be - Answer-larger; lower
/.A firms' cost of _____ reflects an opportunity cost: what the existing shareholders
could have earned if they had received the earnings as dividends and invested the
funds themselves - Answer-retained earnings
/.According to the CAPM< the required rate of return on stock is a positive function of all
the following except:
(a) the risk-free rate of interest
(b) the market rate of return
Answers Updated 2025
According to the text, the most appropriate method of incorporating country risk into
capital budgeting analysis is to: - Answer-estimate the effect of each form of country risk
on cash flows
/.When quantifying country risk - Answer-weights should be assigned to the political and
financial factors according to their perceived importance
/.Country risk assessment should be used when:
(a) determining whether to establish a subsidiary in a foreign country
(b) determining whether to continue business in a foreign country
(c) A and B
(d) none of the above - Answer-(c) A and B
/.According to the text, a firm may be able to achieve a "more efficient" project portfolio,
moving the available project frontier out, if it :
(a) focuses solely on one product
(b) focuses solely on one location to market what it produces
(c) A and B
(d) none of the above - Answer-(d) none of the above
/.According to the information in the text, a host gov't would be least likely to provide
incentives for direct foreign investment (DFI) into its country if the firm planning DFI: -
Answer-would compete with local firms of the host country
/.Which of the following is a reason to consider international business?(a) economies of
scale
(b) exploit monopolistic advantages
(c) diversification
(d) all of the above - Answer-(d) all of the above
/.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 - Answer-strengthening euro
/.Assume an MNC establishes a subsidiary 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: - Answer-the parent finances the entire investment
/.Other things being equal, firms from a particular home country will engage in more
international acquisitions if they expect a foreign currencies to _____ against their home
currency, and if their costs of capital is relatively ______ - Answer-appreciate; low
, /.A previously undertaken project in a foreign country may no longer be feasible
because:
(a) interest rates have declined
(b) the MNC's cost of capital has decreased
(c) the host gov't has increased its tax rates substantially
(d) exchange rate projections changed from a depreciation to an appreciation of the
foreign currency - Answer-(c) the host gov't has increased its tax rates substantially
/.T/F:From an acquirer's perspective, the ideal conditions would be a weak foreign
currency at the time of acquisition and a strengthening of the foreign currency over time
as funds are remitted back to the parent - Answer-True
/.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 - Answer-is greater than
/.T/F:An international acquisition may be preferable to the establishment of a new
subsidiary because the firm can immediately expand it's international business and
benefit from existing customer relationships - Answer-True
/.T/F:At present, U.S. firms acquire more targets in the former Soviet Union than in any
other country - Answer-False
/.Assume the gov't of Krusho requires bribes to approve certain projects. MNCs that
attempt to do business in Krusho must deal with:(a) protective barriers
(b) "red tape" barriers
(c) ethical differences
(d) regulatory barriers - Answer-(c) ethical differences
/.According to the text, MNCs can:
(a) use only debt financing in foreign countries to support foreign subsidiaries
(b) use only equity financing in foreign countries to support foreign subsidiaries
(c) use only parent financing in foreign countries to support foreign subsidiaries
(d) none of the above - Answer-(d) none of the above
/.The ____ an MNC, the _____ its cost of capital is likely to be - Answer-larger; lower
/.A firms' cost of _____ reflects an opportunity cost: what the existing shareholders
could have earned if they had received the earnings as dividends and invested the
funds themselves - Answer-retained earnings
/.According to the CAPM< the required rate of return on stock is a positive function of all
the following except:
(a) the risk-free rate of interest
(b) the market rate of return
