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Explain how the financing decision can influence the sensitivity 1. Impact of Exchange Rates on NPV. Describe in general terms how future appreciation of the euro will likely affect the value (from the parent’s perspective) of a project established in Germany today by a U.S.-based MNC. Will the sensitivity of the project value be affected by the percentage of earnings remitted to the parent each year? 2. Impact of Financing on NP ...

Other / Other 27 Apr 2016

Santa Monica completed its capital budgeting analysis in August 1. Accounting for Changes in Risk. Santa Monica Co., a U.S.-based MNC, was considering establishing a consumer products division in Germany, which would be financed by German banks. Santa Monica completed its capital budgeting analysis in August. Then, in November, the government leadership stabilized and political conditions improved in Germany. In response, Santa Monica i ...

Other / Other 27 Apr 2016

Explain how Nike can conduct multinational capital budgeting 1. Decisions Based on Capital Budgeting. Marathon Inc. considers a one-year project with the Belgian government. Its euro revenue would be guaranteed. Its consultant states that the percentage change in the euro is represented by a normal distribution, and that based on a 95 percent confidence interval, the percentage change in the euro is expected to be between 0 percent an ...

Other / Other 27 Apr 2016

Why would Carson use this approach rather than using the pegged exchange rate 1. Capital Budgeting Analysis. A project in South Korea requires an initial investment of 2 billion South Korean won. The project is expected to generate net cash flows to the subsidiary of 3 billion and 4 billion won in the two years of operation, respectively. The project has no salvage value. The current value of the won is 1,100 won per U.S. dollar, and t ...

Other / Other 27 Apr 2016

What is the limitation of using point estimates of exchange rates 1. MNC Parent’s Perspective. Why should capital budgeting for subsidiary projects be assessed from the parent’s perspective? What additional factors that normally are not relevant for a purely domestic project deserve consideration in multinational capital budgeting? 2. Accounting for Risk. What is the limitation of using point estimates of exchange rates i ...

Other / Other 27 Apr 2016

Would the proposed acquisition likely be more feasible 1. September 11 Effects on NPV. In August 2001, Woodsen Inc. of Pittsburgh, PA considered the development of a large subsidiary in Greece. In response to the September 11, 2001 terrorist attack on the U.S., its expected cash flows and earnings from this acquisition were reduced only slightly. Yet, the firm decided to retract its offer because of an increase in its required rate of re ...

Other / Other 27 Apr 2016

Explain why the required rate of return on its project 1. September 11 Effects on NPV. In August 2001, Woodsen Inc. of Pittsburgh, PA considered the development of a large subsidiary in Greece. In response to the September 11, 2001 terrorist attack on the U.S., its expected cash flows and earnings from this acquisition were reduced only slightly. Yet, the firm decided to retract its offer because of an increase in its required rate of ...

Other / Other 27 Apr 2016

Operating cash flows will begin one year from today 1. Capital Budgeting Example. Brower, Inc. just constructed a manufacturing plant in Ghana. The construction cost 9 billion Ghanian cedi. Brower intends to leave the plant open for three years. During the three years of operation, cedi cash flows are expected to be 3 billion cedi, 3 billion cedi, and 2 billion cedi, respectively. Operating cash flows will begin one year from today and ...

Other / Other 27 Apr 2016

Give the regression equation for predicting restaurant sales 2. Lenny's, a national restaurant chain, conducted a study of the factors affecting demand (sales). The following variables were defined and measured for a random sample of 30 of its restaurants: Y = Annual restaurant sales ($000) X1 = Disposable personal income (per capita) of residents within 5 mile radius X2 = License to sell beer/wine (0 = No, 1 = Yes) X3 = Location (with ...

Other / Other 23 Apr 2016

The combinations of inputs costing a constant C dollars is 1. The Cobb-Douglas production function is: Q = 1.4*L0.6*K0.5. What would be the percentage change in output (%∆Q) if labor grows by 3.0% and capital is cut by 5.0%? [HINT: %∆Q = (EL * %∆L) + (EK * %∆K)] a. %∆Q = + 3.0% b. %∆Q = + 5.0% c. %∆Q = - 0.70% d. %∆Q = - 2.50% e. %∆Q = - 5.0% 2. If the marginal produc ...

Other / Other 23 Apr 2016