The following are possible ways for a UK based company to evaluate an investment in Euroland: i) Discount € cash flows at the € discount rate and translate the result at the €/£ spot ii) Discount € cash flows at the £ discount rate iii) Translate € cash flows to £ then use the £ discount rate iv) Simply evaluate the project in € The following would be correct:
i)
i) and ii)
iii) and iv)
i) and iii)
There are a number of potential differences between the value of a project's stand-alone cash flows and the value of those cash flows to an investing company. Which of these is not one of those differences?
Problems in remitting cash flows
Tax differences between countries
Major currency fluctuations
Differences in accounting policies
From an investment viewpoint, how does an overseas investment differ from a domestic one?
It is more difficult to manage because of the travel
It is not appropriate to treat the investment and financing as separate issues
It is very difficult to forecast demand
The future is uncertain
Which of the following will limit translation risk?
Use International Accounting Standards to achieve consistency
Finance as much of the investment as possible in the currency of the host country
Show the accounts in the currency of the host country
Buy as many of the assets as possible at home and export them to the host country
Transfer prices are:
Fixed rates for currency conversion
Prices at which goods and services are transferred from one group company to another
The fees charged when managers move from one company to another
Not seen as having any bearing on company activities