Question 1

An MNC that plans to acquire a target would prefer to make a bid at a time when the local stock market prices are generally _______.Assume that economic conditions are held constant when completing this statement.
A) low
B) high
C) volatile
D) none of the above

Accepted Answer

MNCs prefer to make bids at a time when local stock market prices are low, as it would reduce the cost of acquisition and increase the chances of the bid being accepted. High stock market prices would make the acquisition costlier, while volatile market conditions could create uncertainty and increase the risk of the deal falling through.

Question 2

Even after an MNC's accept/reject decision of a foreign acquisition has been made,it should be reassessed at various times.In fact,this analysis may indicate that a previously accepted project should be divested.

Accepted Answer

Even after an MNC's accept/reject decision of a foreign acquisition, it is important to reassess the project at various times as market conditions and other factors may change. This analysis may lead to the conclusion that a previously accepted project should be divested.

Question 3

Potential targets in countries where economic conditions are ________ are more likely to experience strong demand for their products in the future and may generate ________ cash flows.
A) strong;lower
B) weak;higher
C) weak;lower
D) strong;higher

Accepted Answer

When economic conditions are strong in a country, the demand for goods and services tends to be higher, which can lead to higher cash flows for businesses. Therefore, in countries with strong economic conditions, potential targets are more likely to experience strong demand for their products in the future and may generate higher cash flows.

Question 4

Which of the following is not a reason that the initial outlay for acquiring a firm in Asia was lower as a result of the Asian crisis
A) Property values in Asia had declined.
B) The parent's currency (for parents in the United States of Europe) has less purchasing power due to the weakening of the Asian currencies.
C) Many firms in Asia were near bankruptcy and were unable to obtain necessary funding.
D) The governments in Asian countries were more willing to allow foreign acquisitions of local firms as a means of resolving the crisis.

Accepted Answer

The weakening of Asian currencies actually made the initial outlay higher for foreign acquirers as they had to pay more in their own currency to acquire the same amount of assets. The other options listed (A, C, and D) all contributed to lower initial outlays for foreign acquirers during the Asian crisis.

Question 5

An international acquisition may be preferable to the establishment of a new subsidiary because the firm can immediately expand its international business and benefit from existing customer relationships.

Accepted Answer

With an international acquisition, the firm is able to enter a new market with an existing customer base and established relationships, whereas establishing a new subsidiary would require building up these relationships from scratch.

Question 6

If the foreign currency ___________ by the time the acquirer makes payment,the acquisition will be more costly,and the cost of the acquisition changes __________ the change in the exchange rate.
A) appreciates;by a lesser percentage then
B) depreciates;in the same proportion as
C) appreciates;in the same proportion as
D) appreciates;by a greater percentage than

Accepted Answer

If the foreign currency appreciates by the time the acquirer makes payment, the acquisition will indeed be more costly because the acquirer will have to spend more of their own currency to purchase the same amount of foreign currency. The cost of the acquisition changes in the same proportion as the change in the exchange rate because the direct relationship between the value of the foreign currency and the cost in the acquirer's currency.

Question 7

When an MNC assesses targets among countries,it would prefer a country where the growth potential for its industry is ______ and the competition within the industry is ________.
A) low;not excessive
B) high;excessive
C) high;not excessive
D) low;excessive

Accepted Answer

An MNC would prefer a country where the growth potential for its industry is high and the competition within the industry is not excessive. High growth potential means there is a large market to tap into and the potential for profit is also high. However, if the competition within the industry is also high, it will be difficult for the MNC to capture a significant share of that market. Therefore, the ideal situation would be high growth potential but not excessive competition.

Question 8

If a target is privately held,general stock market conditions will not affect the amount that an acquirer has to pay for a foreign target.

Accepted Answer

General stock market conditions can indirectly affect the valuation of privately held companies, including foreign targets, as they influence overall economic sentiment, investor behavior, and the availability of financing, which can in turn impact the amount an acquirer has to pay.

Question 9

The earnings of a private European firm are €5 million,and the average P/E ratio of publicly traded European firms in the same industry is 12.This firm is considering the possibility of going public in which it would issue one million shares.If the private firm has similar growth potential and other characteristics similar to other publicly traded firms in the industry,its value can be estimated as ______ million euros.
A) 2.4
B) 60.0
C) 41.7
D) 12

Accepted Answer

The answer of The earnings of a private European firm...

Question 10

The adoption of the euro as the local currency by several European countries has ___________ capital budgeting analysis for an MNC that is comparing possible target firms in those countries.
A) simplified
B) complicated
C) had no effect on
D) none of the above

Accepted Answer

The adoption of the euro has simplified capital budgeting analysis for an MNC because it eliminates exchange rate fluctuations between the countries using the euro, making it easier to compare and evaluate potential investments.

Question 11

A target's previous cash flows are typically an accurate indicator of future cash flows,especially when the target's cash flows would have to be converted into the acquirer's home currency as they are remitted to the parent.

Accepted Answer

Past cash flows may not accurately predict future cash flows due to various factors such as changes in the business environment, competition, and currency exchange rate fluctuations, especially when converting to the acquirer's home currency.

Question 12

If an MNC targets a successful foreign company with plans to continue the target's local business in a more efficient manner,the risk of the business will be relatively _______,and therefore the MNC's required return from acquiring the target will be relatively _______.
A) high;high
B) high;low
C) low;high
D) low;low

Accepted Answer

When an MNC targets a successful foreign company with plans to continue its local business more efficiently, the risk associated with the business is considered low because the business model is already proven to be successful. Consequently, the MNC's required return from acquiring the target would be relatively low, reflecting the lower risk.

Quiz 15: Multinational Restructuring

An MNC that plans to acquire a target would prefer to make a bid at a time when the local stock market prices are generally _______.Assume that economic conditions are held constant when completing this statement.

Even after an MNC's accept/reject decision of a foreign acquisition has been made,it should be reassessed at various times.In fact,this analysis may indicate that a previously accepted project should be divested.

Potential targets in countries where economic conditions are are more likely to experience strong demand for their products in the future and may generate cash flows.

Which of the following is not a reason that the initial outlay for acquiring a firm in Asia was lower as a result of the Asian crisis

An international acquisition may be preferable to the establishment of a new subsidiary because the firm can immediately expand its international business and benefit from existing customer relationships.

If the foreign currency _ by the time the acquirer makes payment,the acquisition will be more costly,and the cost of the acquisition changes the change in the exchange rate.

When an MNC assesses targets among countries,it would prefer a country where the growth potential for its industry is and the competition within the industry is __.

If a target is privately held,general stock market conditions will not affect the amount that an acquirer has to pay for a foreign target.

The adoption of the euro as the local currency by several European countries has ___________ capital budgeting analysis for an MNC that is comparing possible target firms in those countries.

A target's previous cash flows are typically an accurate indicator of future cash flows,especially when the target's cash flows would have to be converted into the acquirer's home currency as they are remitted to the parent.

If an MNC targets a successful foreign company with plans to continue the target's local business in a more efficient manner,the risk of the business will be relatively _,and therefore the MNC's required return from acquiring the target will be relatively _.