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Describe some potential benefits to an MNC 1. Motives for DFI. Describe some potential benefits to an MNC as a result of direct foreign investment (DFI). Elaborate on each type of benefit. Which motives for DFI do you think encouraged Nike to expand its footwear production in Latin America? 2. Impact of a Weak Currency on Feasibility of DFI. Packer, Inc., a U.S. producer of computer disks, plans to establish a subsidiary in Mexico in orde ...

Other / Other 23 Apr 2016

Determine the NPV for this project 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 are remitted back ...

Other / Other 23 Apr 2016

Monitoring Country Risk 1. Monitoring Country Risk. Once a project is accepted, country risk analysis for the foreign country involved is no longer necessary, assuming that no other proposed projects are being evaluated for that country. Do you agree with this statement? Why or why not? 2. Country Risk Analysis. If the potential return is high enough, any degree of country risk can be tolerated. Do you agree with this statement? Why or wh ...

Other / Other 23 Apr 2016

Diversifying Away Country Risk 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 the value of the won is expected to remain constant ...

Other / Other 23 Apr 2016

Lubbock, Inc., produces furniture and has no international business 1. Economic Exposure. Longhorn Co. produces hospital equipment. Most of its revenues are in the United States. About half of its expenses require outflows in Philippine pesos (to pay for Philippine materials). Most of Longhorn’s competition is from U.S. firms that have no international business at all. How will Longhorn Co. be affected if the peso strengthens? 2. Ec ...

Other / Other 23 Apr 2016

Should Wizard finance the subsidiary with debt financing 1. Optimal Financing. Wizard, Inc. has a subsidiary in a country where the government allows only a small amount of earnings to be remitted to the U.S. each year. Should Wizard finance the subsidiary with debt financing by the parent, equity financing by the parent, or financing by local banks in the foreign country? 2. Cost of Capital. Explain how characteristics of MNCs can affect ...

Other / Other 23 Apr 2016

What potential benefits do you think were most important in the decision of the Walt Disney Co. 1. Disney’s DFI Motives. What potential benefits do you think were most important in the decision of the Walt Disney Co. to build a theme park in France? 2. 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 est ...

Other / Other 23 Apr 2016

Incorporating Country Risk in Capital Budgeting 1. Incorporating Country Risk in Capital Budgeting. How could a country risk assessment be used to adjust a project’s required rate of return? How could such an assess¬ment be used instead to adjust a project’s estimated cash flows? 2. Reducing Country Risk. Explain some methods of reducing exposure to existing country risk, while maintaining the same amount of business with ...

Other / Other 23 Apr 2016

Explain why the J.C. Penney stores in Mexico 1. J.C. Penney’s Country Risk Analysis. Recently, J.C. Penney decided to consider expanding into various foreign countries; it applied a comprehensive country risk analysis before making its expansion decisions. Initial screenings of 30 foreign countries were based on political and economic factors that contribute to country risk. For the remaining 20 countries where country risk was con ...

Other / Other 23 Apr 2016

Lehigh anticipated that future cash flows would also be lower 1. Capital Budgeting Logic. Athens, Inc. established a subsidiary in the United Kingdom that was independent of its operations in the United States. The subsidiary’s performance was well above what was expected. Consequently, when a British firm approached Athens about the possibility of acquiring the subsidiary, Athens’ chief financial officer implied that the ...

Other / Other 23 Apr 2016