McqMate
These multiple-choice questions (MCQs) are designed to enhance your knowledge and understanding in the following areas: Master of Business Administration (MBA) .
Chapters
| 1. |
If a UK parent is setting up a French subsidiary, and funds from the subsidiary will be periodically sent to the parent, the ideal situation from the parent's perspective is a ____ after the subsidiary is established. |
| A. | strengthening euro |
| B. | stable euro |
| C. | weak euro |
| D. | B and C are both ideal. |
| Answer» A. strengthening euro | |
| 2. |
Assume the parent of a UK-based MNC plans to completely finance the establishment of its US subsidiary with existing funds from retained earnings in UK 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» C. the parent's cost of capital. | |
| 3. |
A firm considers an exporting project and will invoice the exports in pounds. The expected cash flows in pounds would be more difficult if the currency of the foreign country is ________. |
| A. | fixed |
| B. | volatile |
| C. | stable |
| D. | none of the above, as the firm is not exposed |
| Answer» B. volatile | |
| 4. |
Other things being equal, firms from a particular home country will engage in more international acquisitions if they expect foreign currencies to _______ against their home currency, and if their cost of capital is relatively _______. |
| A. | appreciate; low |
| B. | appreciate; high |
| C. | depreciate; high |
| D. | depreciate; low |
| Answer» A. appreciate; low | |
| 5. |
The impact of blocked funds on the net present value of a foreign project will be greater if interest rates are _______ in the host country and there are _______ investment opportunities in the host country. |
| A. | very high; limited |
| B. | very low; limited |
| C. | very low; numerous. |
| D. | very high; numerous |
| Answer» B. very low; limited | |
| 6. |
A French-based MNC has just established a subsidiary in Algeria. Shortly after the plant was built, the MNC determines that its exchange rate forecasts, which had previously indicated a slight appreciation in the Algerian dinar were probably false. Instead of a slight appreciation, the MNC now expects that the dinar will depreciate substantially due to political turmoil in Algeria. This new development would likely cause the MNC to __________ its estimate of the previously computed net present value. |
| A. | lower |
| B. | increase |
| C. | lower, but not necessarily if the MNC invests enough in Algeria to offset the decrease in NPV |
| D. | increase, but not necessarily if the MNC reduces its investment in Algeria by an offsetting amount |
| Answer» A. lower | |
| 7. |
Assume that Baps Corporation is considering the establishment of a subsidiary in Norway. The initial investment required by the parent is $5,000,000. If the project is undertaken, Baps would terminate the project after four years. Baps' cost of capital is 13%, and the project is of the same risk as Baps' existing projects. All cash flows generated from the project will be remitted to the parent at the end of each year. Listed below are the estimated cash flows the Norwegian subsidiary will generate over the project's lifetime in Norwegian kroner (NOK): Year 1 Year 2 Year 3 Year 4 NOK 10,000,000 NOK 15,000,000 NOK 17,000,000 NOK 20,000,000 The current exchange rate of the Norwegian kroner is $.135. Baps' exchange rate forecast for the Norwegian kroner over the project's lifetime is listed below: Year 1 Year 2 Year 3 Year 4 $.13 $.14 $.12 $.15 Baps is also uncertain regarding the cost of capital. Recently, Norway has been involved in some political turmoil. What is the net |
| A. | -$17,602.62. |
| B. | $8,000,000. |
| C. | $1,048,829. |
| D. | $645,147. |
| Answer» D. $645,147. | |
| 8. |
When a foreign subsidiary is not wholly owned by the parent and a foreign project is partially |
| A. | financed with retained earnings of the parent and of the subsidiary, then: |
| B. | the parent's perspective should be used to evaluate a foreign project. |
| C. | the subsidiary's perspective should be used to evaluate a foreign project. |
| D. | the foreign project should enhance the value of both the parent and the subsidiary. |
| Answer» C. the subsidiary's perspective should be used to evaluate a foreign project. | |
| 9. |
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» D. negatively; negatively | |
| 10. |
A foreign project generates a negative cash flow in year 1 and positive cash flows in years 2 through 5. The NPV for this project will be higher if the foreign currency _________ in year 1 and _________ in years 2 though 5. |
| A. | depreciates; depreciates |
| B. | appreciates; appreciates |
| C. | depreciates; appreciates |
| D. | appreciates; depreciates |
| Answer» C. depreciates; appreciates | |
| 11. |
If an MNC sells a product in a foreign country and imports partially manufactured components needed for production to that country from the U.S., then the local economy's inflation will have: |
| A. | a more pronounced impact on revenues than on costs. |
| B. | a less pronounced impact on revenues than on costs. |
| C. | the same impact on revenues as on costs. |
| D. | none of the above |
| Answer» A. a more pronounced impact on revenues than on costs. | |
| 12. |
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. |
| Answer» C. They are always good indicators of future cash flows. | |
| 13. |
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 acquir |
| Answer» C. Investors anticipate that the target will be acquir | |
| 14. |
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. |
| Answer» C. the host government has increased its tax rates substantially. | |
| 15. |
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. |
| Answer» A. the Chinese yuan would depreciate in the future. | |
| 16. |
A macro-assessment of country risk: |
| A. | is adjusted for the particular business of the firm involved. |
| B. | excludes all aspects relevant to a particular firm or project. |
| C. | A and B |
| D. | none of the above |
| Answer» B. excludes all aspects relevant to a particular firm or project. | |
| 17. |
The checklist approach: |
| A. | requires several inspections of the country being evaluated. |
| B. | requires the use of discriminant analysis to assess country risk. |
| C. | requires ratings and weights to be assigned to all factors relevant in assessing country risk. |
| D. | involves the collection of independent opinions on country risk. |
| Answer» C. requires ratings and weights to be assigned to all factors relevant in assessing country risk. | |
| 18. |
Insurance purchased to cover the risk of expropriation __________, and will typically cover __________. |
| A. | will be the same for all firms; only a portion of the firm's total exposure. |
| B. | will be the same for all firms; all of the firm's total exposure. |
| C. | will be dependent on the firm's risk; all of the firm's total exposure. |
| D. | will be dependent on the firm's risk; only a portion of the firm's total exposure. |
| Answer» D. will be dependent on the firm's risk; only a portion of the firm's total exposure. | |
| 19. |
If a foreign country follows the "Purchase Homemade Products" philosophy, the least effective strategy would be for a UK firm to: |
| A. | use a licensing arrangement with a local firm in that country. |
| B. | enter into a joint venture in that country. |
| C. | develop a subsidiary (under the US name) that manufactures and sells products in that country. |
| D. | develop a subsidiary (under the US name) that manufactures products in that |
| Answer» C. develop a subsidiary (under the US name) that manufactures and sells products in that country. | |
| 20. |
A firm may incorporate a country risk rating into the capital budgeting analysis by: |
| A. | adjusting the NPV upward if the country risk rating has fallen (implying increased risk) below a benchmark level. |
| B. | adjusting the discount rate upward as the country risk rating decreases (implying increased risk). |
| C. | A and B |
| D. | none of the above |
| Answer» B. adjusting the discount rate upward as the country risk rating decreases (implying increased risk). | |
| 21. |
______________ is(are) not a form of political risk. |
| A. | Exchange rate movements |
| B. | Attitude of consumers in the host country |
| C. | Actions of the host government |
| D. | Blockage of fund transfers |
| Answer» A. Exchange rate movements | |
| 22. |
When quantifying country risk: |
| A. | weights should be equally allocated among factors. |
| B. | weights should be assigned to the political and financial factors according to their perceived importance. |
| C. | it is not generally necessary to construct separate ratings for political and financial risk since these will be equally weighed in the final analysis. |
| D. | the derived factors will be identical for all MNCs conducting business in that country. |
| Answer» B. weights should be assigned to the political and financial factors according to their perceived importance. | |
| 23. |
An argument for MNCs to have a debt-intensive capital structure is: |
| A. | they are well diversified. |
| B. | foreign government tax rules may change over time. |
| C. | exposure to exchange rate fluctuations. |
| D. | exposure to fund blockage. |
| Answer» A. they are well diversified. | |
| 24. |
The capital asset pricing theory is based on the premise that: |
| A. | only unsystematic variability in cash flows is relevant. |
| B. | only systematic variability in cash flows is relevant. |
| C. | both systematic and unsystematic variability in cash flows are relevant. |
| D. | neither systematic nor unsystematic variability in cash flows is relevant. |
| Answer» B. only systematic variability in cash flows is relevant. | |
| 25. |
One argument for why subsidiaries should be wholly-owned by the parent is that: |
| A. | the potential conflict of interests between the MNC's managers and shareholders is avoided. |
| B. | the potential conflict of interests between the MNC's majority shareholders and minority shareholders is avoided. |
| C. | the potential conflict of interests between the MNC's existing creditors is avoid |
| Answer» B. the potential conflict of interests between the MNC's majority shareholders and minority shareholders is avoided. | |
| 26. |
Other things being equal, countries with relatively _______ populations and _______ inflation are more likely to have a low cost of capital. |
| A. | young; high |
| B. | old; high |
| C. | old; low |
| D. | young; low |
| Answer» C. old; low | |
| 27. |
According to the text: |
| A. | the cost of debt for each country is somewhat stable over time. |
| B. | the cost of debt for countries change over time, and these changes are negatively correlated. |
| C. | the cost of debt for countries change over time, and these changes are positively correlat |
| Answer» C. the cost of debt for countries change over time, and these changes are positively correlat | |
| 28. |
Which of the following is not a factor that favorably affects an MNC's cost of capital, according to your text? |
| A. | exchange rate risk. |
| B. | size. |
| C. | access to international capital markets. |
| D. | international diversification. |
| Answer» A. exchange rate risk. | |
| 29. |
MNC Corporation has a beta of 2.0. The risk-free rate of interest is 5%, and the return on the stock market overall is expected to be 13%. What is the required rate of return on MNC stock? |
| A. | 21%. |
| B. | 41%. |
| C. | 16%. |
| D. | 13%. |
| Answer» A. 21%. | |
| 30. |
In general, MNCs probably prefer to use ____________ foreign debt when their foreign subsidiaries are subject to potentially ___________ local currencies. |
| A. | more; strong |
| B. | more; weak |
| C. | less; strong |
| D. | less; weak |
| Answer» B. more; weak | |
| 31. |
To the extent that individual economies are ______ each other, net cash flows from a portfolio of subsidiaries should exhibit ______ variability, which may reduce the probability of bankruptcy. |
| A. | dependent on; less |
| B. | independent of; less |
| C. | dependent on; more |
| D. | independent of; more |
| Answer» C. dependent on; more | |
| 32. |
The lower a project's beta, the _______ is the project's _________ risk. |
| A. | lower; systematic |
| B. | lower; unsystematic |
| C. | higher; systematic |
| D. | higher; unsystematic |
| Answer» A. lower; systematic | |
| 33. |
The profitability index is: |
| A. | Net present value/Initial outlay. |
| B. | Initial outlay/Gross present value. |
| C. | Gross present volume/Initial outlay. |
| D. | Gross present value/Net present value. |
| Answer» C. Gross present volume/Initial outlay. | |
| 34. |
Which of the following is a correct method of adjusting for inflation when calculating net present value? |
| A. | Estimate the future cash flows by multiplying by the specific inflation of each cash inflow and outflow item, and then discount using the real rate of return. |
| B. | Estimate the cash flows in real terms and use a real discount rate. |
| C. | Estimate the cash flows in money terms and use a real discount rate. |
| D. | Estimate the cash flows in real terms and use a money discount rate. |
| Answer» B. Estimate the cash flows in real terms and use a real discount rate. | |
| 35. |
The relationship between the money rate of return, m, the real rate of return, h, and the inflation rate, i, is expressed in which of the following formulae? |
| A. | h = 1 + i / 1 + m |
| B. | m = h + i |
| C. | (1 + m) = (1 + h)i |
| D. | 1 + h = (1 + m) / (1 + i) |
| Answer» D. 1 + h = (1 + m) / (1 + i) | |
| 36. |
Which of the following is true? A. Risk is the probability of an outturn being less than anticipated. B. An objective probability is one which can be established mathematically or from historical data. C. The discount rate may be raised or lowered to allow for the risk of a project, the extent of the risk premium being based on indisputable theory. |
| A. | B |
| B. | C |
| C. | A |
| D. | none |
| Answer» A. B | |
| 37. |
Which of the following statements about sensitivity analysis is false? |
| A. | Sensitivity analysis allows the decision maker to direct search effort by highlighting variables which, when they change by a small percentage, have a large impact on NPV. |
| B. | Sensitivity analysis can be used to highlight variables of greatest significance to NPV, which then allows monitoring in the implementation phase and the drawing up of contingency plans. |
| C. | Sensitivity analysis allows decision makers to be more informed about project sensitivities, to know what room they have for judgemental error and decide whether they are prepared to accept the risks. |
| D. | Sensitivity analysis permits the decision maker to change all the variables simultaneously and thereby examine a project in various different circumstance |
| Answer» D. Sensitivity analysis permits the decision maker to change all the variables simultaneously and thereby examine a project in various different circumstance | |
| 38. |
Which of the following does not obey the mean-variance rule? |
| A. | Project X will be preferred to project Y if the standard deviation on X and Y is the same, but the expected return on Y is lower. |
| B. | Project X will be preferred to project Y if the expected return on X exceeds that of Y and the variance is equal to or less than that of Y. |
| C. | Project X will be preferred to project Y if the expected return on X and Y is the same, but Y has a higher standard deviation. |
| D. | Project X will be preferred to project Y if the variance of X is higher than Y and the expected return is lower than Y. |
| Answer» D. Project X will be preferred to project Y if the variance of X is higher than Y and the expected return is lower than Y. | |
| 39. |
The impact of blocked funds on the net present value of a foreign project will be greater if interest rates are _______ in the host country and there are _______ investment opportunities in the host country. |
| A. | very high; limited |
| B. | very low; limited |
| C. | very low; numerous |
| D. | very high; numerous |
| Answer» B. very low; limited | |
| 40. |
Assume that Baps Corporation is considering the establishment of a subsidiary in Norway. The initial investment required by the parent is $5,000,000. If the project is undertaken, Baps would terminate the project after four years. Baps' cost of capital is 13%, and the project is of the same risk as Baps' existing projects. All cash flows generated from the project will be remitted to the parent at the end of each year. Listed below are the estimated cash flows the Norwegian subsidiary will generate over the project's lifetime in Norwegian kroner (NOK): Year 1 NOK 10,000,000 Year 2 NOK 15,000,000 Year 3 NOK 17,000,000 Year 4 NOK 20,000,000 The current exchange rate of the Norwegian kroner is $.135. Baps' exchange rate forecast for the Norwegian kroner over the project's lifetime is listed below: Year 1 $.13 Year 2 $.14 Year 3 $.12 Year 4 $.15 Baps is also uncertain regarding the cost of capital. Recently, Norway has been involved in some political turmoil. What is the net p |
| A. | -$17,602.62. |
| B. | $8,000,000 |
| C. | $1,048,829. |
| D. | $645,147. |
| Answer» D. $645,147. | |
| 41. |
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. | the parent's perspective should be used to evaluate a foreign project. |
| 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. | none of the above |
| Answer» C. the foreign project should enhance the value of both the parent and the subsidiary. | |
| 42. |
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» D. negatively; negatively | |
| 43. |
If an MNC sells a product in a foreign country and imports partially manufactured components needed for production to that country from the U.S., then the local economy's inflation will have: |
| A. | a more pronounced impact on revenues than on costs. |
| B. | a less pronounced impact on revenues than on costs. |
| C. | the same impact on revenues as on costs. |
| D. | none of the above |
| Answer» A. a more pronounced impact on revenues than on costs. | |
| 44. |
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 acquir |
| Answer» C. Investors anticipate that the target will be acquir | |
| 45. |
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. |
| Answer» A. the Chinese yuan would depreciate in the future. | |
| 46. |
When quantifying country risk: |
| A. | weights should be equally allocated among factors. 186 |
| B. | weights should be assigned to the political and financial factors according to their perceived importance. |
| C. | it is not generally necessary to construct separate ratings for political and financial risk since these will be equally weighed in the final analysis. |
| D. | the derived factors will be identical for all MNCs conducting business in that country. |
| Answer» B. weights should be assigned to the political and financial factors according to their perceived importance. | |
| 47. |
The most preferred form of securities for funding by firms in the U.S. is |
| A. | debt |
| B. | preferred stock |
| C. | common stock |
| D. | stock derivatives |
| Answer» A. debt | |
| 48. |
Which one of the following new issues of stock has the greatest probability of lowering its cost of equity capital? |
| A. | Microsoft in the New York markets |
| B. | Toyota on the Tokyo exchange |
| C. | Apple stock on the London exchange |
| D. | all of the above |
| Answer» C. Apple stock on the London exchange | |
| 49. |
When computing the weighted average cost of capital, the weighting should be proportional based on the ______ rather than the _____ value of the firm. |
| A. | book, market |
| B. | hypothetical, book |
| C. | market, analyst's |
| D. | market, book |
| Answer» D. market, book | |
| 50. |
The rate of return on its existing assets that a firm must earn to maintain the current value of the firm's stock is called the: |
| A. | return on equity. |
| B. | internal rate of return. |
| C. | weighted average cost of capital. |
| D. | weighted average cost of equity. |
| Answer» C. weighted average cost of capital. | |
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