Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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1.
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Which of the following is not an example of multinational restructuring?
a. | An MNC builds a new subsidiary in Malaysia. | b. | An MNC acquires a
company in Germany. | c. | An MNC downsizes its operations in Hong
Kong. | d. | An MNC shifts some production from its Swiss subsidiary to its Dutch
subsidiary. | e. | All of the above are examples of multinational
restructuring. |
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2.
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Which of the following is not true regarding a target's previous cash
flows?
a. | They may serve as an initial base from which future cash flows may be estimated after
accounting for other factors. | b. | It may be easier to estimate the cash flows to
be generated by a target than to estimate the cash flows to be generated from a new foreign
subsidiary. | c. | They are always good indicators of future cash flows. | d. | All of the above are
true. |
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3.
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Which of the following would probably not cause the stock price of a foreign
target to decrease?
a. | Its expected cash flows decline. | b. | General stock market conditions in the foreign
country are deteriorating. | c. | Investors anticipate that the target will be
acquired. | d. | All of the above will cause the target's stock price to
decrease. |
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4.
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A previously undertaken project in a foreign country may no longer be feasible
because:
a. | the MNC is unable to raise sufficient funds in order to undertake the
project. | b. | the MNC's cost of capital has decreased. | c. | the host government
has increased its tax rates substantially. | d. | exchange rate projections changed from a
depreciation to an appreciation of the foreign currency. |
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5.
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At present, UK firms acquire more targets in France than in any other
country.
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6.
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Since the cash flows generated by a foreign target will eventually be converted
to the parent's currency, there is no need to consider the foreign exchange rate in the capital
budgeting process.
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7.
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From a foreign currency 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.
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8.
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An acquirer based in a low-tax country may be able to generate higher cash flows
from acquiring a foreign target than an acquirer based in a high-tax country.
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9.
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Acquirers may have different required rates of return because of differences in
the ability to use financial leverage.
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10.
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Privatization involves the sale of previously government-owned businesses by the
government.
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11.
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The valuation of newly privatized businesses is generally more difficult than
the valuation of a foreign target that has operated privately for several years.
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12.
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Other things being equal, a foreign subsidiary in China would more likely be
divested by the U.S. parent if new information caused the parent to suddenly anticipate that:
a. | the Chinese yuan would depreciate in the future. | b. | the Chinese yuan
would appreciate in the future. | c. | the Chinese yuan would remain somewhat stable
in the future. | d. | none of the above; the value of the Chinese yuan has no impact on the feasibility of
a divestiture. |
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