IBUS 401 FINAL EXAM USC 2026
COMPREHENSIVE TEST QUESTIONS FULLY
ANSWERED
◉ Assume the parent of a U.S.-based MNC plans to completely
finance the establishment of its British subsidiary with existing
funds from retained earnings in U.S. operations. According to the
text, the discount rate used in the capital budgeting analysis on this
project should be most affected by:
A) the cost of borrowing funds in the U.K.
B) the cost of borrowing funds in the U.S.
C) the parent's cost of capital.
D) A and B. Answer: the parent's cost of capital.
◉ Other things being equal, a blocked funds restriction is more likely
to have a significant adverse effect on a project if the currency of that
country is expected to _______ over time, and if the interest rate in
that country is relatively ______
A) appreciate;low
B) appreciate; high
C) depreciate; high
D) depreciate;low. Answer: depreciate;low
,◉ The discrepancy between the feasibility of a project in a host
country from the perspective of the U.S. parent versus the subsidiary
administering the project is likely to be greater for projects in
countries where:
A) thetaxesarethesameasintheU.S.
B) there are no blocked fund restrictions.
C) the currency of the host country is expected to depreciate
consistently.
D) noneoftheabove;adiscrepancyisnotpossible.. Answer: the
currency of the host country is expected to depreciate consistently
◉ When a foreign subsidiary is not wholly owned by the parent and
a foreign project is partially financed with retained earnings of the
parent and of the subsidiary, then:
A)theparent'sperspectiveshouldbeusedtoevaluateaforeignproject.B)
the subsidiary's perspective should be used to evaluate a foreign
project.
C) the foreign project should enhance the value of both the parent
and the subsidiary.
D) noneoftheabove. Answer: the foreign project should enhance the
value of both the parent and the subsidiary
◉ An international project's NPV is _________ related to the size of the
initial investment and _________ related to the project's required rate
of return.
, A) positively;positively
B) positive; negatively
C) negatively; positively
D) negatively;negatively. Answer: negatively;negatively
◉ 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. depreciates; is unaffected AND appreciates; is unaffected. Answer:
depreciates; decreases
◉ Everything else being equal, the _________ the depreciation expense
is in a given year, the ________ a foreign project's NPV will be.
A) higher;lower
B) higher; higher
C) lower; higher
D) noneoftheabove. Answer: higher; higher
COMPREHENSIVE TEST QUESTIONS FULLY
ANSWERED
◉ Assume the parent of a U.S.-based MNC plans to completely
finance the establishment of its British subsidiary with existing
funds from retained earnings in U.S. operations. According to the
text, the discount rate used in the capital budgeting analysis on this
project should be most affected by:
A) the cost of borrowing funds in the U.K.
B) the cost of borrowing funds in the U.S.
C) the parent's cost of capital.
D) A and B. Answer: the parent's cost of capital.
◉ Other things being equal, a blocked funds restriction is more likely
to have a significant adverse effect on a project if the currency of that
country is expected to _______ over time, and if the interest rate in
that country is relatively ______
A) appreciate;low
B) appreciate; high
C) depreciate; high
D) depreciate;low. Answer: depreciate;low
,◉ The discrepancy between the feasibility of a project in a host
country from the perspective of the U.S. parent versus the subsidiary
administering the project is likely to be greater for projects in
countries where:
A) thetaxesarethesameasintheU.S.
B) there are no blocked fund restrictions.
C) the currency of the host country is expected to depreciate
consistently.
D) noneoftheabove;adiscrepancyisnotpossible.. Answer: the
currency of the host country is expected to depreciate consistently
◉ When a foreign subsidiary is not wholly owned by the parent and
a foreign project is partially financed with retained earnings of the
parent and of the subsidiary, then:
A)theparent'sperspectiveshouldbeusedtoevaluateaforeignproject.B)
the subsidiary's perspective should be used to evaluate a foreign
project.
C) the foreign project should enhance the value of both the parent
and the subsidiary.
D) noneoftheabove. Answer: the foreign project should enhance the
value of both the parent and the subsidiary
◉ An international project's NPV is _________ related to the size of the
initial investment and _________ related to the project's required rate
of return.
, A) positively;positively
B) positive; negatively
C) negatively; positively
D) negatively;negatively. Answer: negatively;negatively
◉ 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. depreciates; is unaffected AND appreciates; is unaffected. Answer:
depreciates; decreases
◉ Everything else being equal, the _________ the depreciation expense
is in a given year, the ________ a foreign project's NPV will be.
A) higher;lower
B) higher; higher
C) lower; higher
D) noneoftheabove. Answer: higher; higher
