Multinational Business Finance 14th edition David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett - Solutions

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Find Olivetti's weighted average cost of capital under each of the following scenarios. a. Olivetti has a market value debt-to-value ratio of 50 percent. Olivetti's pretax borrowing cost on new long-term euro-denominated debt is 6 percent. Olivetti's beta relative to MSCI's world stock market
Find Fiat's weighted average cost of capital under each of the following scenarios. a. Fiat has a market value debt-to-value ratio of 25 percent. The euro risk-free rate is 5 percent. The risk premium in the Italian stock market is 5 percent. Fiat has a beta is 1.5 when measured against the
Advanced-this is not covered in the text but is covered in several introductory texts in finance Merton Miller ["Debt and Taxes," Journal of Finance, 1977] extended the MM capital structure model to include both corporate and personal taxes, but not costs of financial distress. The value of the
What is tax neutrality? Why is it important to the multinational corporation? Is tax neutrality an achievable objective?
What is the difference between an implicit and an explicit tax? In what way do before-tax required returns react to changes in explicit taxes?
How are foreign branches and controlled foreign corporations taxed in the United States?
How does the U.S. Internal Revenue Code limit the ability of U.S.-based multinational corporations to reduce taxes through multinational tax planning and management?
Are taxes the most important consideration in global location decisions? If not, how should these decisions be made?
Suppose Australia imposes a 30% tax on corporate income. Hungary's maximum corporate income tax rate is 19%. If pre-tax required returns in Hungary are 10%, what are pre-tax required returns on similar assets in Australia for the law of one price to hold?
U.S.-based Crusty Creations, Inc. sells its prepackaged pastries in Mexico and Chile. Each facility earns the equivalent of $10,000 in foreign-source income before tax. Mexico has a 30 percent corporate income tax and no dividend withholding tax. Chile has corporate income taxes of 20 percent and
U.S.-based TaxusMinimus, Inc. (symbol TM) is reviewing the performance of its overseas operations in Serbia and the Cayman Islands. Each foreign subsidiary earns the equivalent of $100,000 in foreign-source income before tax. Serbian corporate income and dividend withholding tax rates are 42
U.S.-based Unnecessary Roughness(URgh) produces rough-hewn wool shirts in Hong Kong for sale in the United States. The effective marginal tax rate is 35 percent in the U.S. and 17 percent in Hong Kong. URgh has excess FTCs from its other international operations, so no additional U.S. taxes are due
What are the shortcomings of option pricing methods for valuing real assets?
In what ways can managers' actions seem inconsistent with the "accept all positive-NPV projects" rule? Are these actions truly inconsistent with the NPV decision rule?
Are managers who do not appear to follow the NPV decision rule irrational?
What is exogenous uncertainty? What is endogenous uncertainty? What difference does the form of uncertainty make to the timing of investment?
What is a switching option? What is hysteresis? Is hysteresis a switching option?
Why does the NPV decision rule have difficulty in valuing managerial flexibility?
Exogenous price uncertainty and the option to invest.Answer the following questions based on the information in Exhibit T16.1.a. Draw a decision tree that depicts this investment decision.b. Calculate the NPV of investing today as if it were a now-or-never alternative.c. Calculate the NPV (at t =
Endogenous price uncertainty and growth options. The investment of Exhibit T16.1 is one of ten soybean processing plants that could be constructed in various Chinese provinces. A government panel will set the price of processed soybeans once production begins. The government panel will not commit
Exogenous cost uncertainty and the option to invest.Consider the investment opportunity in Exhibit T16.1. Suppose price will be ¥50,000 with certainty, but variable production cost will be either ¥30,000 or ¥50,000 with equal probability depending on the decision of a government panel that sets
Exogenous price uncertainty and the option to abandon.Management has gone ahead with the investment in Exhibit T16.1, but the market is very competitive and several competitors are considering abandoning the market. If they do not abandon, price will remain at the current level of ¥30,000/ton in
Define corporate governance. Why is it important in international finance?
Describe several differences in the role of commercial banks in corporate governance in China, Germany, Japan, and the United States.
Describe four ways that banks can influence corporate boardrooms in countries-such as Germany-that offer universal banking?
How does the legal environment affect minority investors? Include a description of tunneling in your answer.
Why are hostile acquisitions less common in Germany and Japan than in the United Kingdom and the United States?
How is turnover in the ranks of top executives similar in China, Germany, Japan and the United States? How is it different?
Who are the likely winners and losers in domestic mergers and acquisitions that involve two firms incorporated in the same country? How are the returns to acquiring firm shareholders related to the method of payment (cash versus stock) and the acquiring firm's free cash flow or profitability?
Bavarian Versicherung (BV) of Germany acquires Napobank of France. The market value of BV stock on the Frankfurt exchange is €1 billion. Napobank's equity trades in Paris for €200 million. BV pays a 30 percent acquisition premium to acquire Napobank. The synergy created through the combination
What are the characteristics of a domestic bond? an international bond? a foreign bond? a Eurobond? a global bond?
What are the benefits and drawbacks of offering securities in bearer form relative to registered form?
What is the difference between a continuous quotation system and a periodic call auction?
What is the EU's "single passport"? How can a financial market or institution qualify?
Describe the characteristics of futures, options, and swaps.
List the various ways in which you might invest in foreign securities.
Do MNCs provide international portfolio diversification benefits? If so, do they provide the same diversification benefits as direct ownership of companies located in the countries in which the MNC does business?
What is the difference between a passive and an active investment philosophy?
Are real world financial markets perfect? If not, in what ways are they imperfect?
Describe some of the barriers to international portfolio diversification.
What is home asset bias? What might be its cause?
What happens to portfolio risk as the number of assets in the portfolio increases?
In words, what does the Sharpe Index measure?
Which portfolio has the most to gain from currency hedging-a portfolio of international stocks or a portfolio of international bonds? Why?
Is international diversification effective in reducing portfolio risk? Why?
Suppose expected dollar returns to U.S. investors in the United States and Germany are 11.8% and 12.5%, respectively. The U.S. standard deviation is 17.8% and the German standard deviation is 30.0%.a. Calculate the expected return of an equally weighted portfolio of these two indices.b. Calculate
A portfolio consists of two assets, A and B, representing weights of 30% and 70% respectively. What is the standard deviation of the portfolio if the standard deviation of asset A is 27.6%, and the standard deviation of asset B is 17.0%, and the correlation coefficient is 0.833?
Assets X and Y are perfectly positively correlated. The standard deviations are X = 0.312 and Y = 0.426. What is the standard deviation of a portfolio with weights wX = 40% and wY = 60%?
Assets X and Y are perfectly negatively correlated. Standard deviations are X = 0.126 and Y = 0.079. What is the standard deviation of an equally weighted portfolio of X and Y?
The Swiss risk free rate is 7.15%. If the Swiss national market return has a mean of 11% and a standard deviation was 24.4%, what is the ex-post return/risk performance of the market?
If a shipment of Pilsner Urquell from the Czech Republic costs 345,628 korunas and the spot exchange rate is 33.24 korunas per euro, what should be the price of the shipment in euros?
a. Fill in the following table for these equal weighted portfolios using the stock returns from Exhibit T20.1.MeanStandard deviationβ WSharpe index½(U.S.) + ½(Canadian)½(U.S.) + ½(Japanese)b. Plot these portfolios on a graph with standard deviation on the x-axis and mean return on the y-axis.
Are individual stock returns more closely related to national or industry factors? What implication does this have for portfolio diversification?
What is the value premium? What is the size effect? Do international stocks exhibit these characteristics? Are these factors evidence of market inefficiency?
What is momentum? Can it lead to profitable investment opportunities for international investors?
Are individual stocks exposed to currency risk? Does currency risk affect required returns?
Does political risk affect required returns?
What assumptions must be added to the traditional CAPM in order to derive the international version of the CAPM?
What is the hedge portfolio in the IAPM?
What is the APT? In what ways is it both better or worse than the IAPM?
If the risk-free rate is 5%, beta is 0.8, and the market risk premium is 6 percent, what is the required return on equity according to the CAPM?
As a security analyst for the Amsterdam branch of EASDAQ (a pan European stock exchange focused on high growth companies with international aspirations), you have identified the following model for Global Graphics: E[r] =  + Z FZ + D FD. Global's expected euro return if all factors are
As a security analyst for Citicorp based in London, you have identified the following model for Deutsche Bank: E[r] =  + TermFTerm + RiskFRisk + SpotFSpot. Deutsche Bank's expected euro return if all factors equal to their expectation is  = 10%. Factors and factor sensitivities in
Comparison of prices or costs across different country and currency environments requires the translation of the local currency into a single common currency. This is most meaningful when the comparison is for the identical or near-identical product or service across countries. Deutsche Bank has
Blundell Biotech is a U.S.-based biotechnology company with operations and earnings in a number of foreign countries. The company's profits by subsidiary, in local currency (in millions), are shown in the following table for 2013 and 2014.The average exchange rate for each year, by currency pairs,
Peng Plasma is a privately held Chinese business. It specializes in the manufacture of plasma cutting torches. Over the past eight years it has held the Chinese renminbi price of the PT350 cutting torch fixed at Rmb 18,000 per unit. Over that same period it has worked to reduce costs per unit, but
Santiago Pirolta has accepted the Managing Director position for Vitro de Mexico's U.S. operations. Vitro is a Mexico-based manufacturer of flat and custom glass products. Much of its U.S. sales are based on a variety of bottle products, both mass market (e.g., glass bottles for soft drinks and
What are some of the risks that come with the growing globalization of business?
At what point in the globalization process did Ganado become a multinational enterprise (MNE)?
What is the role of market imperfections in the creation of opportunities for the multinational firm?
What do firms become multinational?
What is the difference between an international firm and a multinational firm?
What are the main phases that Ganado passed through as it evolved into a truly global firm? What are the advantages and disadvantages of each?
What technological change is even changing the symbols we use in the representation of different country currencies?
What is different about international financial management?
After reading the chapter's description of Ganado's globalization process, how would you explain the distinctions between international, multinational, and global companies?
1. Where does crowd-funding fit in the capital lifecycle of business development? 2. Is crowd-funding really all that unique? What does it offer that traditional funding channels and institutions do not? 3. What is likely to differentiate successes from failures in emerging market crowd-funding
Chantal DuBois lives in Brussels. She can buy a U.S. dollar for €0.7600. Christopher Keller, living in New York City, can buy a euro for $1.3200. What is the foreign exchange rate between the dollar and the euro?
Ranbaxy, an India-based pharmaceutical firm, has continuing problems with its cholesterol reduction product's price in one of its rapidly growing markets, Brazil. All product is produced in India, with costs and pricing initially stated in Indian rupees (Rps), but converted to Brazilian reais (R$)
Many people were surprised when Vietnam became the second largest coffee producing country in the world in recent years, second only to Brazil. The Vietnamese dong, VND or d, is managed against the U.S. dollar but is not widely traded. If you were a traveling coffee buyer for the wholeale market (a
The Channel Tunnel or "Chunnel" passes underneath the English Channel between Great Britain and France, a land-link between the Continent and the British Isles. One side is therefore an economy of British pounds, the other euros. If you were to check the Chunnel's rail ricket Internet rates you
Oriol Díez Miguel S.R.L., a manufacturer of heavy duty machine tools near Barcelona, ships an order to a buyer in Jordan. The purchase price is €425,000. Jordan imposes a 13% import duty on all products purchased from the European Union. The Jordanian importer then re-exports the product to a
The spot rate for Mexican pesos is Ps12.42/$. If U.S.-based company Quartzite Inc. buys Ps500,000 spot from its bank on Monday, how much must Quartzite pay and on what date?
Before World War I, $20.67 was needed to buy one ounce of gold. If, at the same time one ounce of gold could be purchased in France for FF410.00, what was the exchange rate between French francs and U.S. dollars?
Under the gold standard, the price of an ounce of gold in U.S. dollars was $20.67, while the price of that same ounce in British pounds was £3.7683. What would the exchange rate between the dollar and the pound be if the U.S. dollar price had been $42.00 per ounce?
Toyota manufactures most of the vehicles it sells in the United Kingdom in Japan. The base platform for the Toyota Tundra truck line is ¥1,650,000. The spot rate of the Japanese yen against the British pound has recently moved from ¥197/£ to ¥190/£. How does this change the price of the Tundra
If the price of former Chairman of the U.S. Federal Reserve Alan Greenspan's memoir, "The Age of Turbulence," is listed on Amazon.ca as C$26.33, but costs just US$23.10 on Amazon.com, what exchange rate does that imply between the two currencies?
In December 1994 the government of Mexico officially changed the value of the Mexican peso from 3.2 pesos per dollar to 5.5 pesos per dollar. What was the percentage change in its value? Was this a depreciation, devaluation, appreciation, or revaluation? Explain.
The Hong Kong dollar has long been pegged to the U.S. dollar at HK$7.80/$. When the Chinese yuan was revalued in July 2005 against the U.S. dollar from Yuan8.28/$ to Yuan8.11/$, how did the value of the Hong Kong dollar change against the yuan?
Many experts believe that the Chinese currency should not only be revalued against the U.S. dollar as it was in July 2005, but also be revalued by 20% or 30%. What would be the new exchange rate value if the yuan was revalued an additional 20% or 30% from its initial post-revaluation rate of Yuan
Why is the formation and use of the euro considered to be of such a great accomplishment? Was it really needed? Has it been successful?
What are the major changes and developments that must occur for the Chinese yuan to be considered "globalized"?
What is the Triffin Dilemma? How does it apply to the development of the Chinese yuan as a true global currency?
What choices do you believe that China will make in terms of the Impossible Trinity as it continues to develop global trading and use of the Chinese yuan?
What did it mean under the gold standard to "defend a fixed exchange rate," and what did this imply about a country's money supply?
What was the foundation of the Bretton Woods international monetary system, and why did it eventually fail?
What specifically does a floating rate of exchange mean? What is the role of government?
Explain what is meant by the term impossible trinity and why it is in fact "impossible"?
Use the following data from the International Monetary Fund to answer questions 3.1 through 3.4.1. What is Australia's balance on goods?2. What is Australia's balance on services?3. What is Australia's balance on goods and services?4. What is Australia's current account balance?
Use the following Chinese (Mainland) balance of payments data from the IMF to answer questions 3.10 through 3.13.1. Is China experiencing a net capital inflow or outflow?2. What is China's Total for Groups A and B?3. What is China's Total for Groups A through C?4. What is China's Total for Groups A

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Multinational Business Finance 14th edition David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett - Solutions

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