International Corporate Finance 2nd Edition Laurent L. Jacque - Solutions

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5. Transfer Pricing and Tax Evasion (intermediate). Access accounting firms websites such as www.pwc.com and www.kpmg.com to research the current status of the European Union combat against tax evasion by Google, Apple, Facebook, and Amazon.
4. Transfer Pricing and Tax Avoidance (advanced). Electrolux, the Swedish multinational manufacturer of household appliances and white goods (refrigerators and washingmachines), manufactures compressors in Kiev (Ukraine) for assembly and distribution in Poland. Corporate income tax rates are,
3. Taxation of Foreign Source Income (B-intermediate). Referring to problem 2, consider the case of Fluor’s wholly owned subsidiary in Ireland, which is taxed at the corporate income tax rate of 12.5 percent. Fluor-Ireland earned $27 million in 2012.a. How much in taxes is Fluor-USA liable for on
2. Taxation of Foreign Source Income (A-intermediate). Fluor Inc. is a U.S.-based global engineering and construction company. Its Brazilian subsidiary earned $112 million in 2012, which is taxed at the Brazilian corporate income tax of 30 percent.Dividends repatriated to the U.S. parent are
1. Branch or Subsidiary for St. Jude Medical’s New Foreign Operations (beginner).TheMinneapolis-based medical instruments firm is considering starting an assembly operation in Bratislava (Slovakia) and is hesitating between establishing it as a branch or a subsidiary. The proposed venture will be
10. How is centralized global cash management implemented?
9. How should multinationals structure their global earnings remittance strategy?
8. How can leading and lagging intracorporate payments be used to create value for the multinational corporation?
7. What are reinvoicing centers? How do they differ from tax havens? How do multinational corporations take advantage of reinvoicing centers?
6. What is the economic logic for corporate inversion?
5. What is Subpart F income?
4. What guidelines are to be followed bymultinational corporations in setting crossborder transfer prices?
3. What is tax deferral, and how is it applied to foreign-source income?
2. How is foreign-source income treated by the tax authorities of a multinational’s home country?
1. What is the difference between territorial and worldwide tax regimes?
Q: Otis-Spain is in a cash deficit of €250 million and can arrange a shortterm loan from Banco de Santander at the annual rate of 6 percent. Otis-Germany earns 3 percent on its €250 million short-term investment, and Otis-Switzerland – its central cash depository – earns 4 percent on its
Q: Nokia-Vietnam exports $100 million worth of assembled cell phones to Nokia-Singapore for distribution through Southeast Asia. Singapore has a perfectly convertible currency, but Vietnam does not. How can Nokia-Vietnam adjust its export price to repatriate $5 million of trapped dividends to
Q: What is a tax haven?
Q: Medtronic is taxed at 34 percent in the United States, but its Swiss subsidiary is subject to a lower corporate income tax of 15 percent. What are the total taxes paid on a $100 million pretax income generated by the Swiss subsidiary, assuming that 100 percent of Swiss earnings are repatriated?
■ How to optimize global cash management
■ How to design a global remittance strategy
■ How to organize the international finance function by using reinvoicing centers and international finance subsidiaries
■ How to exploit the multinational financial system’s potential
■ What the key principles of international taxation are
9. Sovereign Wealth Funds. Access the International Monetary Fund-sponsored International Forum of Sovereign Wealth Funds at www.ifswf.org and explain what the Santiago Principles are.
8. Yield Curves. Access www.bloomberg.com and sketch the 30-year yield curve for Japanese and Australian government bonds of 1, 2, 5, 10, 20, and 30 years.
7. Mutual Funds (intermediate). Access the Morningstar website at www.morningstar.com and identify the two best-performing Indian Equity mutual funds using the last five years as the reference period. What is their market capitalization? Did the dollar price of the Indian rupee add to or detract
6. Oil Stocks (intermediate). Access the Bloomberg website at www.bloomberg.com and track the price of the multinational oil company Total (TOT) stock price over the last five years. What is Total’s P/E, dividend yield, and beta? Compare Total stock price performance inclusive of dividends
5. Optimal International Portfolio Diversification (advanced). Kaiwa is a U.S.-based value fund considering investing overseas to benefit from international diversification.It is contemplating investing in the South Korea country fund that offers an expected return of 13 percent for a level of risk
4. Hedging Currency Risk in Foreign Equity Investing (intermediate). Cougar Investments holds 10,000 shares of Embraer and 25,000 shares of Bank Itau, currently worth BRL 100 and BRL 40, respectively. Both stocks have an expected return in Brazilian reals of 12 percent for 2012 with a similar level
3. Currency Risk in Foreign Equity (intermediate). During the first quarter of 2012, the Brazilian real depreciated from BRL 1.65 to BRL 1.85 = US$1. Shares of Petrobras trading on the New York Stock Exchange in the form of American depositary receipts (ADRs) declined from US$31 to US$26 over the
2. Correlation in Global Investing (beginner). The standard deviation of Infosys in Indian rupees (INR) is σI = 8.5 percent, and the standard deviation of the US$/INR exchange rate is σs = 5.5 percent.a. If the correlation between Infosys’s asset return, in INR, and the exchange rate movement
1. Risk and Return (beginner). Consider the following information on the expected return and risk of two country funds – the Taiwan country fund (asset 1) and the Ukraine country fund (asset 2):a. Calculate the expected return and risk of portfolios invested in the following proportions. Assume a
10. Why is globalization reducing the gains from international portfolio diversification?
9. How do you measure the correlation between two market indexes? What does it mean for two markets to be negatively correlated?
8. Should currency risk be managed independently or conjointly with market risk?
7. Discuss the major risks involved in foreign stock investing. How can they be hedged?
6. What are the key barriers to investing in foreign stocks? How can they be overcome?
5. What is the nature of the benefits to be derived from investing in foreign stocks?How can they be measured?
4. Identify the new players in the global asset management industry.
3. What are the key factors reshaping the asset management industry?
2. Compare the Sharpe ratio with the information ratio.
1. What are the key metrics of investment analysis?
Q: Cougar Investments has purchased ¥10 billion in the Nippon Millennium fund – an exchange-traded fund that tracks the Nikkei 225 – at ¥9,000 per share. Cougar decided to protect its investment against a possible correction in the Nikkei 225 by buying a put option on the Nikkei 225 at a
Q: Cougar Investments purchased 100,000 shares of Infosys, the Indian software company; the standard deviation of Infosys’s return is 28 percent, whereas the standard deviation of the CAD price of one Indian rupee is 19 percent.Should Cougar Investments hedge its portfolio investment, given that
Q: Venezuela’s stock exchange showed a correlation of 0.56 with the United States over the period 1990–1999. Would you expect that after 10 years of the Chavez rule this coefficient would increase or decrease over the next decade, 2000–2009?
Q: Which country’s stock exchange shows the lowest correlation with the rest of the world’s major markets?
■ What alternative investments and the search for alpha are (see the appendix to this chapter)
■ What the new landscape of the global asset management industry is
■ How to invest internationally
■ How to manage currency risk in international portfolios
■ What the benefits of international diversification are
■ What the basics of international portfolio management are
5. Would you advise the IFC to invest in this project? Are there any covenants you would recommend the IFC require to be included in the loan agreement? The Indian power sector has seen significant investments in recent years; however, there still remain approximately 400 million people in the
4. Assuming that the base-case scenario holds, what return could Hudson Clean Energy Partners expect from its investment should it decide to exit the project at the end of the seventh year? Assume that INR 50 = US$1 at the inception of the project. The Indian power sector has seen significant
3. What are the risks faced by the sponsors? Differentiate between the Indian and the U.S. sponsor’s situations. The Indian power sector has seen significant investments in recent years; however, there still remain approximately 400 million people in the country without electricity, representing
2. Develop a graphical map of the project’s relevant cash flows. The Indian power sector has seen significant investments in recent years; however, there still remain approximately 400 million people in the country without electricity, representing close to 35 percent of the country’s
1. What are the key characteristics that qualify this project as project finance? The Indian power sector has seen significant investments in recent years; however, there still remain approximately 400 million people in the country without electricity, representing close to 35 percent of the
8. How should the changing leverage be taken into account in valuing project finance?
7. Why do off-takers play a critical role in project finance? What is off-taker risk?
6. Why is escrowing for debt servicing a requirement of project finance? Are equity cash flows to sponsors inclusive or exclusive of cash escrowed for debt servicing?
5. What are nonrecourse loans, and why are they important to the architecture of project finance?
4. Why is construction financing provided with recourse to the sponsors?
3. Compare the risks faced by equity sponsors during a project-financed venture’s construction phase versus the operational phase. Are the risks faced by lenders the same?
2. What are the advantages of using project finance rather than corporate finance for funding large-scale infrastructure investments?
1. What is project finance? Identify the sectors of the economy where project finance type deals are most likely to be found.
■ How to value projects
■ What the risks faced by such projects are and how the unique governance structure of project finance allows for a superior allocation of those risks
■ What makes project finance unique and how it differs from traditional corporate finance
3. How much should Etihad bid for MAS shares? A significant strategic shareholding in Malaysia Airlines (MAS) had become available in the market. The flag carrier of Malaysia with a fleet of 85 aircraft traveling to 103 destinations worldwide, the airline was trading at an equity value of US$1,316
2. What would be the synergistic benefits for Etihad of acquiring a strategic minority stake in Malaysia Airlines? A significant strategic shareholding in Malaysia Airlines (MAS) had become available in the market. The flag carrier of Malaysia with a fleet of 85 aircraft traveling to 103
1. What is a fair value for MAS as a stand-alone firm? A significant strategic shareholding in Malaysia Airlines (MAS) had become available in the market. The flag carrier of Malaysia with a fleet of 85 aircraft traveling to 103 destinations worldwide, the airline was trading at an equity value of
10. Mergers & Acquisitions in Europe. With the help of the IMAA website, identify the two largest life-science/pharmaceuticals European M&As during the last twenty years. What were the values of the transactions? Which sector in Europe was the most active by value of transactions over that same
9. Mergers & Acquisitions in Energy. Access the Institute for Mergers, Acquisitions and Alliance (IMAA) website at https://imaa-institute.org/mergersand-acquisitions-statistics/ and identify the three largest cross-border M&As involving energy companies in the last twenty years. Is the Energy
8. Costs/benefits analysis (advanced). How should Vietnam gauge the proposed cross-border acquisition described in problems 5 and 6?a. What are the costs and benefits of Ciments Lafarge’s proposed acquisition on Vietnam’s balance of payments?b. What are the costs and benefits of Ciments
7. Timing cross-border acquisition (intermediate). GE Capital, a global leader in automobile leasing, started to scrutinize possible acquisitions in Thailand in the early 1990s when the THB was pegged to the U.S. dollar at THB 25 = US$1.With healthy economic growth at better than 7.5 percent per
6. Which cost of capital? (advanced). Guillaume Tel of Ciments Lafarge was unsure about the legitimacy of applying a discount rate of 10.5 percent to value the acquisition of Hoang Thach Cement Company. After all, Ciments Lafarge’s company-wide WACC was estimated at 9 percent and the country risk
5. Cross-border valuation with concessionary financing (intermediate). Referring to Ciments Lafarge’s acquisition, explain how the valuation of the Hoang Thach Cement Company would differ if instead of an all-cash deal the transaction had been financed with a VND 1 billion loan from the State
4. Bidding for Salgacoar (intermediate). Maersk is preparing an offer to acquire the privately held Indian shipping company Salgacoar. In addition to the background information provided in problem 1, Maersk believes that by giving access to its global logistical network, Salgacoar would be able to
3. Leveraged buyout (intermediate). Referring to background information provided in problem 1, assume now that the transaction was financed by a jumbo loan for 80 percent of the purchase price. The loan is INR-denominated at 12 percent with interest payment tax-deductible at the rate of 30 percent
2. How should private equity firms value cross-border acquisitions? (B) Referring to background information provided in problem 1 assume that Ulysses did purchase Salgacoar’s shipping business at a P/E multiple of 10 for cash, that Salgacoar’s shipping business will grow its earnings at the
1. How should private equity firms value cross-border acquisitions? (A) Ulysses, a Boston-based private equity firm, specializes in transportation with a focus on emerging capital markets. It has identified Salgacoar Ltd., a family-owned business group headquartered in Goa (India). Salgacoar is
8. What is the value range within which the acquirer should set the acquisition premium?
7. Discuss the pros and cons of valuation by multiples in cross-border acquisitions.
6. What is the appropriate discount rate to use in valuing foreign companies?
5. Contrast cross-border acquisitions carried out by multinationals, private equity firms, and sovereign wealth funds.
4. What is unique about valuing cross-border acquisitions? What valuation methodology would you recommend?
3. What are the pros and cons of international acquisition as a mode of foreign market entry?
2. What is meant by a control premium? Who are the primary beneficiaries in M&As?
1. Discuss the logic for mergers and acquisitions. Are cross-border M&As substantially different from domestic M&As?
Q: One of HTC’s major Vietnamese competitors, Sai Son Cement Company, is currently trading at a P/E of 8.3 on the Ho Chi Minh stock exchange.Siam Cement, the leading Thai cement manufacturer, is trading on the Stock Exchange of Thailand at a P/E of 7.1 while Ciments Lafarge on the Paris Bourse
Q: The Chinese yuan is currently widely believed to be undervalued by 30 to 35 percent vis-à-vis the U.S. dollar and 40 to 45 percent vis-à-vis the euro.Should U.S. firms or eurozone domiciled firms delay or accelerate their acquisition strategy of Chinese firms?
■ How to value a cross-border acquisition
■ What the international acquisition process is
■ How the landscape of cross-border M&As is changing
■ What the industrial logic of mergers and acquisitions is
11. Country Risk Premium. Log in to Professor Aswath Damodaran’s website at http://www.stern.nyu.edu/~adamodar/pc/datasets/ctryprem.xls and identify the three countries with the highest and lowest country risk premia. Is the data consistent with the country rating?
10. Offshoring (C-advanced). Referring to the information provided in problems 8 and 9, inflation in the Philippines is expected to run at an annual rate of 8 percent over the next five years while the peso, currently trading at PHP 50 = €1, is expected to depreciate at the rate of 5 percent
9. Offshoring (B-advanced). Referring to information provided in Problem 8, Cardiex’s sales in the European Union are projected to remain stable at €100 million for the next 5 years. Show pro-form income and cash-flow statements for Cardiex manufacturing in the proposed offshore plant in the
8. Offshoring (A-intermediate). Cardiex is a world-leading manufacturer of implantable defibrillators based in Maastricht (Netherlands). Gustav Lund, Cardiex’s senior vice president for production and logistics, is trying to decide whether to offshore the assembly of defibrillators to the

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International Corporate Finance 2nd Edition Laurent L. Jacque - Solutions

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