Chapter 15: International Corporate Governance and Control
1. International governance is achieved by all of the following except:
a.
poison pills.
b.
board of directors.
c.
institutional investors.
d.
blockholders.
e.
All of the above achieve governance.
2. Which of the following is not an advantage of international acquisitions over the establishment of a new subsidiary?
a.
The firm can immediately expand its international business.
b.
An international acquisition typically generates quicker cash flows than the establishment of a new subsidiary.
c.
International acquisitions are generally cheaper than the establishment of a new subsidiary.
d.
An international acquisition typically generates larger cash flows than the establishment of a new subsidiary.
e.
All of the above are advantages of international acquisitions.
3. According to your text, U.S. firms pursue more international acquisitions in ____ than in other countries.
a.
b.
c.
d.
e.
4. 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
Chapter 15: International Corporate Governance and Control
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.
5. Based on information in your text, all of the following factors should be considered in an international acquisition,
except:
a.
the target’s willingness to be acquired.
b.
the target’s previous acquisition history.
c.
the target’s previous cash flows.
d.
the target’s local economic conditions.
6. Which of the following tax-related factors need not be considered in assessing a foreign target?
a.
corporate tax rates in the host country
b.
withholding tax rates in the host country
c.
withholding tax rates in the home country
d.
corporate tax rates in the home country
e.
All of the above must be considered in assessing a foreign target.
Klimewsky, Inc., a U.S.-based MNC, has screened several targets. Based on economic and political considerations, only
one eligible target remains in Malaysia. Klimewsky would like you to value this target and has provided you with the
following information:
•
7. Refer to Exhibit 15–1. Based on the information provided above, the net present value of the Malaysian target is $____
million.
a.
155.9
b.
111.5
c.
138.0
d.
143.0
e.
none of the above
•
•
•
8. Refer to Exhibit 15–1. The Malaysian target’s value based on its stock price is $____ million.
a.
1.4
b.
1,673.9
c.
111.5
d.
88.6
e.
none of the above
9. Refer to Exhibit 15–1. The target’s board has indicated that it finds a premium of 30 percent appropriate. You have been
asked to negotiate for Klimewsky with the Malaysian target. What is the maximum percentage premium you should be
willing to offer?
a.
30.0 percent
b.
25.9 percent
c.
You should not offer any premium because the market’s valuation is below Klimewsky’s valuation.
d.
none of the above
10. 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
c.
Investors anticipate that the target will be acquired.
d.
All of the above will cause the target’s stock price to decrease.
11. Which of the following factors is least likely to cause the required rate of return to vary among MNCs assessing the
same foreign target?
a.
differences in the timing of remittances from the target to the parent
b.
differences in the desired use of the target
c.
differences in the local risk-free interest rate
d.
differences in the exchange rate between the target’s currency and the parent’s currency
12. Which of the following types of international corporate control transaction is probably the most difficult to value by
an MNC?
a.
an international acquisition of an existing business
b.
an international acquisition of a newly privatized business
c.
an international partial acquisition
d.
an international divestiture
13. A previously undertaken project in a foreign country may no longer be feasible because:
a.
interest rates have declined.
b.
the MNC’s cost of capital has decreased.
c.
the host government has increased its tax rates substantially.
d.
exchange rate projections have changed from a depreciation to an appreciation of the foreign currency.
14. An MNC may have to pay a higher price to acquire a target in countries that do not strictly enforce laws against
insider trading.
a.
True
b.
False
15. Even if an existing business adds value to an MNC, it may be worthwhile to assess whether the business would
generate more value to the MNC if it was restructured.
a.
True
b.
False
16. At present, U.S. firms acquire more targets in China than in any other country.
a.
True
b.
False
17. When a U.S. firm attempts to acquire a target in a country where shareholder rights are weak, it will generally have to
pay cash for the shares because the target shareholders will not want to receive stock in the U.S. firm as payment.
a.
True
b.
False
18. The government of a country may prevent a foreign firm from acquiring local targets and downsizing the targets.
a.
True
b.
False
19. Since the cash flows generated by a foreign target will eventually be converted to the parent’s currency, there is no
need to consider the foreign exchange rate in the capital budgeting process.
a.
True
b.
False
20. From an acquirer’s perspective, the ideal conditions would be a weak foreign currency at the time of acquisition and a
strengthening of the foreign currency over time as funds are remitted back to the parent.
a.
True
b.
False
21. Premiums required to entice a target’s board of directors to approve an acquisition are usually between 1 and 3 percent
of the target’s market price.
a.
True
b.
False
22. A foreign target’s expected future cash flows generally vary among different MNCs valuing the target.
a.
True
b.
False
23. An acquirer based in a low-tax country may be able to generate higher cash flows from acquiring a foreign target than
an acquirer based in a high-tax country.
a.
True
b.
False
24. The valuation of a target (from the parent’s perspective) should increase when the potential acquirer’s cost of capital
increases.
a.
True
b.
False
25. If potential acquirers are based in different countries, their required rates of return when considering a specific target
will only vary if the desired use of the target is different.
a.
True
b.
False
26. Acquirers may have different required rates of return because of differences in the local risk-free interest rate.
a.
True
b.
False
27. An international acquisition is different from the establishment of a new subsidiary in that the MNC can immediately
expand its international business since the target is already in place.
a.
True
b.
False
28. An MNC that plans to acquire a target would prefer to time its bid for the target when the local stock market prices in
the target’s country are generally high.
a.
True
Chapter 15: International Corporate Governance and Control
b.
False
29. Privatization involves the sale of previously government-owned businesses by the government.
a.
True
b.
False
30. An MNC should periodically reassess its investments to determine whether to divest them.
a.
True
b.
False
31. The initial outlay for a project in a foreign country may decline if property values in that country decline.
a.
True
b.
False
32. The valuation of newly privatized businesses is generally more difficult than the valuation of a foreign target that has
operated privately for several years.
a.
True
Chapter 15: International Corporate Governance and Control
b.
False
33. 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.
34. Which of the following is not directly considered in the decision by a U.S.-based MNC to divest a subsidiary?
a.
the required rate of return on the subsidiary
b.
forecasted exchange rates of the subsidiary’s currency relative to the dollar
c.
the initial outlay on the project
d.
the possible selling price of the project
35. Regarding the valuation of privatized businesses in less developed countries, ____ can normally be estimated with a
high degree of accuracy.
a.
future cash flows
b.
future exchange rate movements
c.
the proper discount rate
d.
none of the above