国际财务管理 英文版答案1

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Chapter1:MultinationalFinancialManagement:AnOverview15Chapter1MultinationalFinancialManagement:AnOverviewLectureOutlineManagingtheMNCFacingAgencyProblemsManagementStructureofanMNCWhyFirmsPursueInternationalBusinessTheoryofComparativeAdvantageImperfectMarketsTheoryProductCycleTheoryHowFirmsEngageinInternationalBusinessInternationalTradeLicensingFranchisingJointVenturesAcquisitionsofExistingOperationsEstablishingNewForeignSubsidiariesSummaryofMethodsValuationModelforanMNCDomesticModelValuingInternationalCashFlowsUncertaintySurroundinganMNC’sCashFlowsOrganizationoftheText Chapter1:MultinationalFinancialManagement:AnOverview15ChapterThemeThischapterintroducesthemultinationalcorporationashavingsimilargoalstothepurelydomesticcorporation,butawidervarietyofopportunities.Withadditionalopportunitiescomepotentialincreasedreturnsandotherformsofrisktoconsider.Thepotentialbenefitsandrisksareintroduced.TopicstoStimulateClassDiscussion1.WhatistheappropriatedefinitionofanMNC?2.WhydoesanMNCexpandinternationally?3.WhataretherisksofanMNCwhichexpandsinternationally?4.WhydoyouthinkEuropeancountriesattractU.S.firms?5.Whymustpurelydomesticfirmsbeconcernedabouttheinternationalenvironment?POINT/COUNTER-POINT:ShouldanMNCReduceItsEthicalStandardstoCompeteInternationally?POINT:Yes.WhenaU.S.-basedMNCcompetesinsomecountries,itmayencountersomebusinessnormstherethatarenotallowedintheU.S.Forexample,whencompetingforagovernmentcontract,firmsmightprovidepayoffstothegovernmentofficialswhowillmakethedecision.Yet,intheUnitedStates,afirmwillsometimestakeaclientonanexpensivegolfoutingorprovideskyboxticketstoevents.Thisisnodifferentthanapayoff.Ifthepayoffsarebiggerinsomeforeigncountries,theMNCcancompeteonlybymatchingthepayoffsprovidedbyitscompetitors.COUNTER-POINT:No.AU.S.-basedMNCshouldmaintainastandardcodeofethicsthatappliestoanycountry,evenifitisatadisadvantageinaforeigncountrythatallowsactivitiesthatmightbeviewedasunethical.Inthisway,theMNCestablishesmorecredibilityworldwide.WHOISCORRECT?UsetheInternettolearnmoreaboutthisissue.Whichargumentdoyousupport?Offeryourownopiniononthisissue.ANSWER:Theissueisfrequentlydiscussed.ItiseasytosuggestthattheMNCshouldmaintainastandardcodeofethics,butinreality,thatmeansthatitwillnotbeabletocompeteinsomecases.Forexample,evenifitsubmitsthelowestbidonaspecificforeigngovernmentproject,itwillnotreceivethebidwithoutapayofftotheforeigngovernmentofficials.Theissueisespeciallyaconcernforlargeprojectsthatmaygeneratesubstantialcashflowsforthefirmthatischosentodotheproject.Ideally,theMNCcanclearlydemonstratetowhoeveroverseesthedecisionprocessthatitdeservestobeselected.Ifthereisjustonedecision-makerwithnooversight,anMNCcannotensurethatthedecisionwillbeethical.Butifthedecision-makermustbeaccountabletoadepartmentwhooverseesthedecision,theMNCmaybeabletopromptthedepartmenttoensurethattheprocessisethical.AnswerstoEndofChapterQuestions Chapter1:MultinationalFinancialManagement:AnOverview151.AgencyProblemsofMNCs.a.ExplaintheagencyproblemofMNCs.ANSWER:Theagencyproblemreflectsaconflictofinterestsbetweendecision-makingmanagersandtheownersoftheMNC.Agencycostsoccurinanefforttoassurethatmanagersactinthebestinterestoftheowners.b.WhymightagencycostsbelargerforanMNCthanforapurelydomesticfirm?ANSWER:TheagencycostsarenormallylargerforMNCsthanpurelydomesticfirmsforthefollowingreasons.First,MNCsincurlargeragencycostsinmonitoringmanagersofdistantforeignsubsidiaries.Second,foreignsubsidiarymanagersraisedindifferentculturesmaynotfollowuniformgoals.Third,thesheersizeofthelargerMNCswouldalsocreatelargeagencyproblems.2.ComparativeAdvantage.a.Explainhowthetheoryofcomparativeadvantagerelatestotheneedforinternationalbusiness.ANSWER:Thetheoryofcomparativeadvantageimpliesthatcountriesshouldspecializeinproduction,therebyrelyingonothercountriesforsomeproducts.Consequently,thereisaneedforinternationalbusiness.b.ExplainhowtheproductcycletheoryrelatestothegrowthofanMNC.ANSWER:Theproductcycletheorysuggeststhatatsomepointintime,thefirmwillattempttocapitalizeonitsperceivedadvantagesinmarketsotherthanwhereitwasinitiallyestablished.3.ImperfectMarkets.a.Explainhowtheexistenceofimperfectmarketshasledtotheestablishmentofsubsidiariesinforeignmarkets.ANSWER:Becauseofimperfectmarkets,resourcescannotbeeasilyandfreelyretrievedbytheMNC.Consequently,theMNCmustsometimesgototheresourcesratherthanretrieveresources(suchasland,labor,etc.).b.Ifperfectmarketsexisted,wouldwages,prices,andinterestratesamongcountriesbemoresimilarorlesssimilarthanunderconditionsofimperfectmarkets?Why?ANSWER:Ifperfectmarketsexisted,resourceswouldbemoremobileandcouldthereforebetransferredtothosecountriesmorewillingtopayahighpriceforthem.Asthisoccurred,shortagesofresourcesinanyparticularcountrywouldbealleviatedandthecostsofsuchresourceswouldbesimilaracrosscountries.4.InternationalOpportunities. Chapter1:MultinationalFinancialManagement:AnOverview15a.DoyouthinktheacquisitionofaforeignfirmorlicensingwillresultingreatergrowthforanMNC?Whichalternativeislikelytohavemorerisk?ANSWER:Anacquisitionwilltypicallyresultingreatergrowth,butitismoreriskybecauseitnormallyrequiresalargerinvestmentandthedecisioncannotbeeasilyreversedoncetheacquisitionismade.b.Describeascenarioinwhichthesizeofacorporationisnotaffectedbyaccesstointernationalopportunities.ANSWER:Somefirmsmayavoidopportunitiesbecausetheylackknowledgeaboutforeignmarketsorexpectthattherisksareexcessive.Thus,thesizeofthesefirmsisnotaffectedbytheopportunities.c.ExplainwhyMNCssuchasCocaColaandPepsiCo,Inc.,stillhavenumerousopportunitiesforinternationalexpansion.ANSWER:CocaColaandPepsiCostillhavenewinternationalopportunitiesbecausecountriesareatvariousstagesofdevelopment.SomecountrieshavejustrecentlyopenedtheirborderstoMNCs.Manyofthesecountriesdonotoffersufficientfoodordrinkproductstotheirconsumers.5.InternationalOpportunitiesDuetotheInternet.a.Whatfactorscausesomefirmstobecomemoreinternationalizedthanothers?ANSWER:Theoperatingcharacteristicsofthefirm(whatitproducesorsells)andtheriskperceptionofinternationalbusinesswillinfluencethedegreetowhichafirmbecomesinternationalized.Severalotherfactorssuchasaccesstocapitalcouldalsoberelevanthere.Firmsthatarelabor-intensivecouldmoreeasilycapitalizeonlow-wagecountrieswhilefirmsthatrelyontechnologicaladvancescouldnot.b.OfferyouropiniononwhytheInternetmayresultinmoreinternationalbusiness.ANSWER:TheInternetallowsforeasyandlow-costcommunicationbetweencountries,sothatfirmscouldnowdevelopcontactswithpotentialcustomersoverseasbyhavingawebsite.Manyfirmsusetheirwebsitetoidentifytheproductsthattheysell,alongwiththepricesforeachproduct.Thisallowsthemtoeasilyadvertisetheirproductstopotentialimportersanywhereintheworldwithoutmailingbrochurestovariouscountries.Inaddition,theycanaddtotheirproductlineandchangepricesbysimplyrevisingtheirwebsite,soimportersarekeptabreastoftheexporter’sproductinformationbymonitoringtheexporter’swebsiteperiodically.Firmscanalsousetheirwebsitestoacceptordersonline.Somefirmswithaninternationalreputationusetheirbrandnametoadvertiseproductsovertheinternet.Theymayusemanufacturersinsomeforeigncountriestoproducesomeoftheirproductssubjecttotheirspecification6.ImpactofExchangeRateMovements.PlakCo.ofChicagohasseveralEuropeansubsidiariesthatremitearningstoiteachyear.Explainhowappreciationoftheeuro(thecurrencyusedinmanyEuropeancountries)wouldaffectPlak’svaluation.ANSWER:Plak’svaluationshouldincreasebecausetheappreciationoftheeurowillincreasethedollarvalueofthecashflowsremittedbytheEuropeansubsidiaries. Chapter1:MultinationalFinancialManagement:AnOverview157.BenefitsandRisksofInternationalBusiness.Asanoverallreviewofthischapter,identifypossiblereasonsforgrowthininternationalbusiness.Then,listthevariousdisadvantagesthatmaydiscourageinternationalbusiness.ANSWER:Growthininternationalbusinesscanbestimulatedby(1)accesstoforeignresourceswhichcanreducecosts,or(2)accesstoforeignmarketswhichboostrevenues.Yet,internationalbusinessissubjecttorisksofexchangeratefluctuations,andpoliticalrisk(suchasapossiblehostgovernmenttakeover,taxregulations,etc.).8.ValuationofanMNC.HudsonCo.,aU.S.firm,hasasubsidiaryinMexico,wherepoliticalriskhasrecentlyincreased.Hudson’sbestguessofitsfuturepesocashflowstobereceivedhasnotchanged.However,itsvaluationhasdeclinedasaresultoftheincreaseinpoliticalrisk.Explain.ANSWER:ThevaluationoftheMNCisthepresentvalueofexpectedcashflows.Theincreaseinriskresultsinahigherexpectedreturn,whichreducesthepresentvalueoftheexpectedfuturecashflows.9.CentralizationandAgencyCosts.WouldtheagencyproblembemorepronouncedforBerkleyCorp.,whichhasitsparentcompanymakemostmajordecisionsforitsforeignsubsidiaries,orOaklandCorp.,whichusesadecentralizedapproach?ANSWER:TheagencyproblemwouldbemorepronouncedforOaklandbecauseofahigherprobabilitythatsubsidiarydecisionswouldconflictwiththeparent.Assumingthattheparentattemptstomaximizeshareholderwealth,decisionsbytheparentshouldbecompatiblewithshareholderobjectives.Ifthesubsidiariesmadetheirowndecisions,theagencycostswouldbehighersincetheparentwouldneedtomonitorthesubsidiariestoassurethattheirdecisionswereintendedtomaximizeshareholderwealth.10.GlobalCompetition.Explainwhymorestandardizedproductspecificationsacrosscountriescanincreaseglobalcompetition.ANSWER:Standardizedproductspecificationsallowfirmstomoreeasilyexpandtheirbusinessacrossothercountries,whichincreasesglobalcompetition.11.ExposuretoExhangeRates.McCannaCorp.,aU.S.firm,hasaFrenchsubsidiarythatproduceswineandexportstovariousEuropeancountries.Allofthecountrieswhereitsellsitswineusetheeuroastheircurrency,whichisthesameasthecurrencyusedinFrance.IsMcCannaCorp.exposedtoexchangeraterisk?ANSWER:Thesubsidiaryanditscustomersbasedincountriesthatnowusetheeuroastheircurrencywouldnolongerbeexposedtoexchangeraterisk.12.MacroversusMicroTopics.ReviewthetableofcontentsandindicatewhethereachofthechaptersfromChapter2throughChapter21hasamacroormicroperspective.ANSWER:Chapters2through8aremacro,whileChapters9through21aremicro.13.MethodsUsedtoConductInternationalBusiness.Duve,Inc.,desirestopenetrateaforeignmarketwitheitheralicensingagreementwithaforeignfirmorbyacquiringaforeignfirm.Explainthedifferencesinpotentialriskandreturnbetweenalicensingagreementwithaforeignfirm,andtheacquisitionofaforeignfirm. Chapter1:MultinationalFinancialManagement:AnOverview15ANSWER:Alicensingagreementhaslimitedpotentialforreturn,becausetheforeignfirmwillreceivemuchofthebenefitsasaresultofthelicensingagreement.Yet,theMNChaslimitedrisk,becauseitdidnotneedtoinvestsubstantialfundsintheforeigncountry.AnacquisitionbytheMNCrequiresasubstantialinvestment.Ifthisinvestmentisnotasuccess,theMNCmayhavetroublesellingthefirmitacquiredforareasonableprice.Thus,thereismorerisk.However,ifthisinvestmentissuccessful,allofthebenefitsaccruetotheMNC.14.InternationalBusinessMethods.SnyderGolfCo.,aU.S.firmthatsellshigh-qualitygolfclubsintheU.S.,wantstoexpandinternationallybysellingthesamegolfclubsinBrazil.a.Describethetradeoffsthatareinvolvedforeachmethod(suchasexporting,directforeigninvestment,etc.)thatSnydercouldusetoachieveitsgoal.ANSWER:Snydercanexporttheclubs,butthetransportationexpensesmaybehigh.IfcouldestablishasubsidiaryinBraziltoproduceandselltheclubs,butthismayrequirealargeinvestmentoffunds.Itcoulduselicensing,inwhichitspecifiestoaBrazilianfirmhowtoproducetheclubs.Inthisway,itdoesnothavetoestablishitsownsubsidiarythere.b.Whichmethodwouldyourecommendforthisfirm?Justifyyourrecommendation.ANSWER:IftheamountofgolfclubstobesoldinBrazilissmall,itmaydecidetoexport.However,iftheexpectedsaleslevelishigh,itmaybenefitfromlicensing.Ifitisconfidentthattheexpectedsaleslevelwillremainhigh,itmaybewillingtoestablishasubsidiary.ThewagesarelowerinBrazil,andthelargeinvestmentneededtoestablishasubsidiarymaybeworthwhile.15.ImpactofPoliticalRisk.Explainwhypoliticalriskmaydiscourageinternationalbusiness.ANSWER:Politicalriskincreasestherateofreturnrequiredtoinvestinforeignprojects.Someforeignprojectswouldhavebeenfeasibleiftherewasnopoliticalrisk,butwillnotbefeasiblebecauseofpoliticalrisk.16.ImpactofSeptember11.FollowingtheterroristattackontheU.S.,thevaluationsofmanyMNCsdeclinedbymorethan10percent.ExplainwhytheexpectedcashflowsofMNCswerereduced,eveniftheywerenotdirectlyhitbytheterroristattacks.ANSWER:AnMNC’scashflowscouldbereducedinthefollowingways.First,adeclineintravelwouldaffectanyMNCsthathavebusinessintravel-relatedindustries.Theairline,hotel,andtourist-relatedindustrieswereexpectedtoexperienceadeclineinbusiness.LayoffswereannouncedimmediatelybymanyoftheseMNCs.Second,theseeffectsontravel-relatedindustriescancarryovertootherindustries,andweakeneconomies.Third,thecostofinternationaltradeincreasedasaresultoftighterrestrictionsonsomeproducts.Fourth,someMNCsincurredexpensesasaresultofincreasingsecuritytoprotecttheiremployees.AdvancedQuestions17.InternationalJointVenture.Anheuser-Busch,theproducerofBudweiserandotherbeers,hasrecentlyexpandedintoJapanbyengaginginajointventurewithKirinBrewery,thelargest Chapter1:MultinationalFinancialManagement:AnOverview15breweryinJapan.ThejointventureenablesAnheuser-BuschtohaveitsbeerdistributedthroughKirin’sdistributionchannelsinJapan.Inaddition,itcanutilizeKirin’sfacilitiestoproducebeerthatwillbesoldlocally.Inreturn,Anheuser-BuschprovidesinformationabouttheAmericanbeermarkettoKirin.a.ExplainhowthejointventurecanenableAnheuser-Buschtoachieveitsobjectiveofmaximizingshareholderwealth.ANSWER:ThejointventurecreatesawayforAnheuser-BuschtodistributeBudweiserthroughoutJapan.ItenablesAnheuser-BuschtopenetratetheJapanesemarketwithoutrequiringasubstantialinvestmentinJapan.b.Explainhowthejointventurecanlimittheriskoftheinternationalbusiness.ANSWER:ThejointventurehaslimitedriskbecauseAnheuser-BuschdoesnotneedtoestablishitsowndistributionnetworkinJapan.Thus,Anheuser-Buschmaybeabletouseasmallerinvestmentfortheinternationalbusiness,andthereisahigherprobabilitythattheinternationalbusinesswillbesuccessful.c.Manyinternationaljointventuresareintendedtocircumventbarriersthatnormallypreventforeigncompetition.WhatbarrierinJapanisAnheuser-Buschcircumventingasaresultofthejointventure?WhatbarrierintheUnitedStatesisKirincircumventingasaresultofthejointventure?ANSWER:Anheuser-BuschisabletobenefitfromKirin’sdistributionsysteminJapan,whichwouldnotnormallybesoaccessible.KirinisabletolearnmoreabouthowAnheuser-Buschexpandeditsproductacrossnumerouscountries,andthereforebreaksthroughan“information”barrier.d.ExplainhowAnheuser-BuschcouldlosesomeofitsmarketshareincountriesoutsideJapanasaresultofthisparticularjointventure.ANSWER:Anheuser-BuschcouldlosesomeofitsmarketsharetoKirinasaresultofexplainingitsworldwideexpansionstrategiestoKirin.However,itappearsthatAnheuser-Buschexpectsthepotentialbenefitsofthejointventuretooutweighanypotentialadverseeffects.18.ImpactofEasternEuropeanGrowth.ThemanagersofLoyolaCorp.recentlyhadameetingtodiscussnewopportunitiesinEuropeasaresultoftherecentintegrationamongEasternEuropeancountries.TheydecidednottopenetratenewmarketsbecauseoftheirpresentfocusonexpandingmarketshareintheUnitedStates.Loyola’sfinancialmanagershavedevelopedforecastsforearningsbasedonthe12percentmarketshare(definedhereasitspercentageoftotalEuropeansales)thatLoyolacurrentlyhasinEasternEurope.Is12percentanappropriateestimatefornextyear’sEasternEuropeanmarketshare?Ifnot,doesitlikelyoverestimateorunderestimatetheactualEasternEuropeanmarketsharenextyear?ANSWER:ItwouldlikelyoverestimateitsmarketsharebecausethecompetitionshouldincreaseascompetitorspenetratetheEuropeancountries.19.ValuationofanMNC.BirmCo.,basedinAlabama,considersseveralinternationalopportunitiesinEuropethatcouldaffectthevalueofitsfirm.Thevaluationofitsfirmisdependentonfourfactors:(1)expectedcashflowsindollars,(2)expectedcashflowsineurosthatareultimately Chapter1:MultinationalFinancialManagement:AnOverview15convertedintodollars,(3)therateatwhichitcanconverteurostodollars,and(4)Birm’sweightedaveragecostofcapital.Foreachopportunity,identifythefactorsthatwouldbeaffected.a.BirmplansalicensingdealinwhichitwillselltechnologytoafirminGermanyfor$3,000,000;thepaymentisinvoicedindollars,andthisprojecthasthesamerisklevelasitsexistingbusinesses.b.BirmplanstoacquirealargefirminPortugalthatisriskierthanitsexistingbusinesses.c.BirmplanstodiscontinueitsrelationshipwithaU.S.suppliersothatcanimportasmallamountofsupplies(denominatedineuros)atalowercostfromaBelgiansupplier.d.BirmplanstoexportasmallamountofmaterialstoIrelandthataredenominatedineuros.ANSWER:OpportunityDollarCFEuroCFExchangerateatwhichBirmCo.convertseurostodollarsBirmingham’sweightedaveragecostofcapitala.jointventureXb.acquisitionXXc.importedsuppliesXd.exportstoIrelandX20.AssessingMotivesforInternationalBusiness.FortWorthInc.specializesinmanufacturingsomebasicpartsforsportsutilityvehiclesthatareproducedandsoldintheU.S.ItsmainadvantageintheU.S.isthatitsproductionisefficient,andlesscostlythanthatofsomeotherunionizedmanufacturers.IthasasubstantialmarketshareintheU.S.Itsmanufacturingprocessislabor-intensive.ItpaysrelativelylowwagescomparedtoU.S.competitors,buthasguaranteedthelocalworkersthattheirjobpositionswillnotbeeliminatedforthenext30years.IthiredaconsultanttodeterminewhetheritshouldsetupasubsidiaryinMexico,wherethepartswouldbeproduced.TheconsultantsuggestedthatForthWorthshouldexpandforthefollowingreasons.Offeryouropiniononwhethertheconsultant’sreasonsarelogical:a.TheoryofCompetitiveAdvantage:TherearenotmanySUVssoldinMexico,soFortWorthInc.wouldnothavetofacemuchcompetitionthere.b.ImperfectMarketsTheory:FortWorthInc.cannoteasilytransferworkerstoMexico,butitcanestablishasubsidiarythereinordertopenetrateanewmarket.c.ProductCycleTheory:FortWorthInc.hasbeensuccessfulintheU.S.IthaslimitedgrowthopportunitiesbecauseitalreadycontrolsmuchoftheU.S.marketforthepartsitproduces.Thus,thenaturalnextstepistoconductthesamebusinessinaforeigncountry.d.ExchangeRateRisk.Theexchangerateofthepesohasweakenedrecently,sothiswouldallowFortWorthInc.tobuildaplantataverylowcost(byexchangingdollarsforthecheappesostobuildtheplant). Chapter1:MultinationalFinancialManagement:AnOverview15e.PoliticalRisk.ThepoliticalconditionsinMexicohavestabilizedinthelastfewmonths,soFortWorthshouldattempttopenetratetheMexicanmarketnow.ANSWER:Noneoftheargumentsbytheconsultantarelogical.IfSUVsarenotsoldintheMexicanmarket,thereisnoneedforthesepartsinMexico.FortWorthInc.shouldonlyattempttopenetrateanewmarketifthereisdemand.JustbecauseithaslimitedgrowthpotentialintheU.S.,thisdoesnotmeanthattherewillbedemandforitsproductinMexico.Eveniftheexchangerateislowrelativetorecentperiods,itcoulddeclinefurther,whichwouldadverselyaffectanythedollaramountoffutureremittedearnings.StablepoliticalconditionsinMexicoarenotasufficientreasontopursuedirectforeigninvestmentthere.21.ValuationofWal-Mart’sInternationalBusiness.InadditiontoallofitsstoresintheU.S.,Wal-Marthas11storesinArgentina,24storesinBrazil,214storesinCanada,29storesinChina,92storesinGermany,15storesinSouthKorea,611storesinMexico,and261storesintheU.K.ConsiderthevalueofWal-Martasbeingcomposedoftwoparts,aU.S.part(duetobusinessintheU.S.)andanon-U.S.part(duetobusinessinothercountries).Explainhowtodeterminethepresentvalue(indollars)ofthenon-U.S.partassumingthatyouhadaccesstoallthedetailsofWal-MartbusinessesoutsidetheU.S.ANSWER:Thenon-U.S.partcanbemeasuredasthepresentvalueoffuturedollarcashflowsresultingfromthenon-U.S.businesses.Basedonrecentearningsdataforeachstoreandapplyinganexpectedgrowthrate,youcanestimatetheremittedearningsthatwillcomefromeachcountryineachyearinthefuture.Youcanconvertthosecashflowstodollarsusingaforecastedexchangerateperyear.Determinethepresentvalueofcashflowsofallstoreswithinonecountry.Thenrepeattheprocessforothercountries.Thenaddupallthepresentvaluesthatyouestimatedtoderiveaconsolidatedpresentvalueofallnon-U.S.subsidiaries.22.ImpactofInternationalBusinessonCashFlowsandRisk.NantucketTravelAgencyspecializesintoursforAmericantourists.Untilrecently,allofitsbusinesswasintheU.S.ItjustestablishedasubsidiaryinAthens,Greece,whichprovidestourservicesintheGreekislandsforAmericantourists.ItrentedashopneartheportofAthens.ItalsohiredresidentsofAthens,whocouldspeakEnglishandprovidetoursoftheGreekislands.Thesubsidiary’smaincostsarerentandsalariesforitsemployeesandtheleaseofafewlargeboatsinAthensthatitusesfortours.AmericantouristspayfortheentiretourindollarsatNantucket’smainU.S.officebeforetheydepartforGreece.a.ExplainwhyNantucketmaybeabletoeffectivelycapitalizeoninternationalopportunitiessuchastheGreekislandtours.ANSWER:ItalreadyhasestablishedcredibilitywithAmericantourists,butcouldpenetrateanewmarketwithsomeofthesamecustomersthatithasservedontoursintheU.S.b.Nantucketisprivately-ownedbyownerswhoresideintheU.S.andworkinthemainoffice.ExplainpossibleagencyproblemsassociatedwiththecreationofasubsidiaryinAthens,Greece.HowcanNantucketattempttoreducetheseagencycosts?ANSWER:TheemployeesofthesubsidiaryinAthensarenotowners,andmayhavenoincentivetomanageinamannerthatmaximizesthewealthoftheowners.Thus,theymaymanagethetoursinefficiently. Chapter1:MultinationalFinancialManagement:AnOverview15Nantucketcouldattempttoallowtheemployeesaportionoftheownershipofthecompanysothattheybenefitmoredirectlyfromgoodperformance.Alternatively,NantucketmayconsiderhavingoneofitsownerstransfertoAthenstooverseethesubsidiary’soperations.c.Greece’scostoflaborandrentarerelativelylow.ExplainwhythisinformationisrelevanttoNantucket’sdecisiontoestablishatourbusinessinGreece.ANSWER:ThelowcostofrentandlaborwillbebeneficialtoNantucket,becauseitenablesNantuckettocreatethesubsidiaryatalowcost.d.ExplainhowthecashflowsituationoftheGreektourbusinessexposesNantuckettoexchangeraterisk.IsNantucketfavorablyorunfavorablyaffectedwhentheeuro(Greece’scurrency)appreciatesagainstthedollar?Explain.ANSWER:Nantucket’stourbusinessinGreeceresultsindollarcashinflowsandeurocashoutflows.ItwillbeadverselyaffectedbytheappreciationoftheeurobecauseitwillrequiremoredollarstocoverthecostsinAthensiftheeuro’svaluerises.e.NantucketplanstofinanceitsGreektourbusiness.ItssubsidiarycouldobtainloansineurosfromabankinGreecetocoveritsrent,anditsmainofficecouldpayofftheloansovertime.Alternatively,itsmainofficecouldborrowdollarsandwouldperiodicallyconvertdollarstoeurostopaytheexpensesinGreece.DoeseithertypeofloanreducetheexposureofNantuckettoexchangeraterisk?Explain.ANSWER:No.Theeuroloanswouldbeusedtocovereuroexpenses,butNantucketwouldneeddollarstopayofftheloans.Alternatively,theU.S.dollarloanswouldstillrequireconversionofdollarstoeuros.Witheithertypeofloan,Nantucketisstilladverselyaffectedbytheappreciationoftheeuroagainstthedollar.f.ExplainhowtheGreekislandtourbusinesscouldexposeNantuckettocountryrisk.ANSWER:ThesubsidiarycouldbesubjecttogovernmentrestrictionsortaxesinGreecethatwouldplaceitatadisadvantagerelativetootherGreektourcompaniesbasedinAthens.23.ValuationofanMNC.Yahoo!hasexpandeditsbusinessbyestablishingportalsinnumerouscountries,includingArgentina,Australia,China,Germany,Ireland,Japan,andtheU.K.Ithascashoutflowsassociatedwiththecreationandadministrationofeachportal.Italsogeneratescashinflowsfromsellingadvertisingspaceonitswebsite.Eachportalresultsincashflowsinadifferentcurrency.Thus,thevaluationofYahoo!isbasedonitsexpectedfuturenetcashflowsinArgentinepesosafterconvertingthemintoU.S.dollars,itsexpectednetcashflowsinAustraliandollarsafterconvertingthemintoU.S.dollars,andsoon.ExplainhowandwhythevaluationofYahoo!wouldchangeifmostinvestorssuddenlyexpectedthatthatthedollarwouldweakenagainstmostcurrenciesovertime.ANSWER:ThevaluationofYahoo!shouldincreasebecausethepresentvalueofexpecteddollarcashflowstobereceivedwouldincrease.24.UncertaintySurroundinganMNC’sValuation.CarlisleCo.isaU.S.firmthatisabouttopurchasealargecompanyinSwitzerlandatapurchasepriceof$20million.Thiscompanyproducesfurnitureandsellsitlocally(inSwitzerland),anditisexpectedtoearnlargeprofitseveryyear.ThecompanywillbecomeasubsidiaryofCarlisleandwillperiodicallyremitits Chapter1:MultinationalFinancialManagement:AnOverview15excesscashflowsduetoitsprofitstoCarlisleCo.AssumethatCarlisleCo.hasnootherinternationalbusiness.Carlislehas$10millionthatitwillusetopayforpartoftheSwisscompanyandwillfinancetherestofitspurchasewithborroweddollars.CarlisleCo.canobtainsuppliesfromeitheraU.S.supplieroraSwisssupplier(inwhichcasethepaymentwouldbemadeinSwissfrancs).Bothsuppliersareveryreputableandtherewouldbenoexposuretocountryriskwhenusingeithersupplier.IsthevaluationofthetotalcashflowsofCarlisleCo.moreuncertainifitobtainsitssuppliesfromaU.S.firmoraSwissfirm?Explainbriefly.ANSWER:ThevaluationofCarlisleCo.ismoreuncertainifitusesaU.S.supplierbecauseitwillhavealargeramountofcashflowsthatwillberemittedfromSwitzerlandandconvertedintodollars.IfitobtainssuppliesfromSwitzerland,itcanuseaportionofitsSwissfranccashflowstocoverthecost,andwillconvertasmalleramountoffrancsintodollarsonaperiodicbasis.Thus,itislessexposedwhensourcingfromSwitzerland.SolutiontoContinuingCaseProblem:Blades,Inc.1.WhataretheadvantagesBladescouldgainfromimportingfromand/orexportingtoaforeigncountrysuchasThailand?ANSWER:TheadvantagesBlades,Inc.couldgainfromimportingfromThailandincludepotentiallyloweringBlades’costofgoodssold.Iftheinputs(rubberandplastic)arecheaperwhenimportedfromaforeigncountrysuchasThailand,thiswouldincreaseBlades’netincome.SincenumerouscompetitorsofBladesarealreadyimportingcomponentsfromThailand,importingwouldincreaseBlades’competitivenessintheU.S.,especiallysinceitspricesareamongthehighestintherollerbladeindustry.Furthermore,sinceBladesisconsideringlongerrangeplansinThailand,importingfromandexportingtoThailandmaypresentitwithanopportunitytoestablishinitialrelationshipswithsomeThaisuppliers.Asfarasexportingisconcerned,Blades,Inc.couldbeoneofthefirstfirmstosellrollerbladesinThailand.ConsideringthatBladesiscontemplatingtoeventuallyshiftitssalestoThailand,thiscouldbeamajorcompetitiveadvantage.2.WhataresomeofthedisadvantagesBladescouldfaceasaresultofforeigntradeintheshortrun?Inthelongrun?ANSWER:ThereareseveralpotentialdisadvantagesBlades,Inc.shouldconsider.Firstofall,BladeswouldbeexposedtocurrencyfluctuationsintheThaibaht.Forexample,thedollarcostofimportedinputsmaybecomemoreexpensiveovertimeifthebahtappreciatesevenifThaisuppliersdonotadjusttheirprices.However,Blades’salesinThailandwouldalsoincreaseindollartermsifthebahtappreciates,evenifBladesdoesnotincreaseitsprices.Blades,Inc.wouldalsobeexposedtotheeconomicconditionsinThailand.Forexample,ifthereisarecession,BladeswouldsufferfromdecreasedsalestoThailand.Inthelongrun,BladesshouldbeawareofanyregulatoryandenvironmentalconstraintstheThaigovernmentmayimposeonit(suchaspollutioncontrols).Furthermore,thecompanyshouldbeawareofthepoliticalriskinvolvedinoperatinginThailand.Forexample,thelikelihoodofexpropriationbytheThaigovernmentshouldbeassessed.AnotherimportantissueinvolvedinBlades’long-runplansishowtheforeignsubsidiarywouldbemonitored.Geographicaldistancemaymakemonitoringverydifficult.ThisisanespeciallyimportantpointsinceThaimanagersmayconformtogoalsotherthanthemaximizationofshareholderwealth. Chapter1:MultinationalFinancialManagement:AnOverview151.WhichtheoriesofinternationalbusinessdescribedinthischapterapplytoBlades,Inc.intheshortrun?Inthelongrun?ANSWER:Thereareatleastthreetheoriesofinternationalbusiness:thetheoryofcomparativeadvantage,theimperfectmarketstheory,andtheproductcycletheory.Intheshortrun,BladeswouldliketoimportfromThailandbecauseinputssuchasrubberandplasticarecheaperinThailand.Also,itwouldliketoexporttoThailandtotakeadvantageofthefactthatfewrollerbladesarecurrentlysoldinThailand.BothofthesefactorssuggestthattheimperfectmarketstheoryappliestoBladesintheshortrun.Inthelongrun,thegoalistopossiblyestablishasubsidiaryinThailandandtobeoneofthefirstrollerblademanufacturersinThailand.ThesuperiorityofitsproductionprocesssuggeststhatthetheoryofcomparativeadvantagewouldapplytoBladesinthelongrun.However,theproductcycletheoryalsoappliestoBlades,sinceitsU.S.salesaredecliningandBladesfeelsthatitmusteventuallyestablishasubsidiaryinThailandinordertopreserveitscompetitiveadvantageoverThaicompetitors.2.Whatlong-rangeplansotherthantheestablishmentofasubsidiaryinThailandareanoptionforBladesandmaybemoresuitableforthecompany?ANSWER:SinceBenHoltisveryunfamiliarwithinternationalbusiness,andsinceBladeshasneveroperatedoutsidetheUnitedStates,establishmentofasubsidiaryinThailandisprobablynotthebestwayforBlades,Inc.togainafootholdinThailandinthelongrun.BladesshouldinitiallyconsiderajointventurewithThaifirmsthatmanufacturerollerblades.TheadvantagewouldbeaccesstoThaidistributionchannels,familiarityoftheThaifirmwithcustomsandethicsinThailand,andanestablishedmarket.Ofcourse,sinceBlades’productionprocessisunique,ajointventurewouldprovidetheThaisubsidiarywithknowledgeoftheproductionpurposes,whichitmayduplicateafterthejointventureterminates. Chapter1:MultinationalFinancialManagement:AnOverview15SolutiontoSupplementalCase:RangerSupplyCompanyThiscaseissimplyintendedtoforcestudentstothinkaboutreasonsfororagainstinternationalbusiness.Aswithmostcases,therearenoperfectsolutions,buttherearesomegeneralconclusionsthatcanbedrawn.a.Someofthemoreobviousfactorstoconsiderare:1.Competition.TherearesimilardistributorsinCanada,whereasEasternEuropemaynothaveanorganizedsystemforthedistributionofofficesupplies.Yet,someEuropeanfirms(liketheBritishcompetitor)mayattempttopursuetheEasternEuropeanmarket.2.TransportationCosts.ThecostsoftransportingofficesuppliestoEasternEuropewouldbehigh,placingRangeratarelativedisadvantagecomparedtootherEuropeanfirms.3.ExportBarriers.Eithercountrycouldimposetariffsorquotasontheexports.CanadaislesslikelythanEasternEuropeancountriestoimposesuchrestrictions.4.MarketingCharacteristics.RangerwouldhaveaneasiertimeadaptingtotheCanadianmarket.TheinformationaboutEasternEuropefirmswouldbemorelimited.Thus,Rangerwouldbeunabletoidentifymanyofthefirmsthatmayneedofficesupplies,unlessitexpendedfundstosearchfornewlyopenedretailstores.Furthermore,thesestoresmayprefertodealwithasupplierthatisnotsodistant.Forexample,theymayhaveconnectionswithWesternEuropesuppliers.SinceRangerhasnoexperienceinEasternEurope,itmaybeatadisadvantageinattemptingtopenetratethatmarket.5.ExchangeRates.ThefutureexchangeratesoftheCanadiandollarandcurrenciesofEasternEuropeancountriescouldberelevant.EvenifRangerplanstoinvoicetheexportsindollars,thefutureexchangerateswillinfluencetheamountofforeigncurrencyneededbythefirmsinCanadaorEasternEuropetopurchasethesupplies.Therefore,foreigndemandforthesupplieswillbeinfluencedbytheexchangerates.ThefutureEasternEuropeancurrencyvaluesaremoreuncertain.Infact,thegovernmentsmayevenpreventconversionofthesecurrenciesintoU.S.dollars.Overall,mostofthefactorswouldfavorCanadaasthemorereasonablemarkettopursue.b.RecallthatthereasonforRangertoexpandoverseaswastooffsettheanticipatedU.S.demandforitssupplies.Inthisway,itcouldmaintainitspresentproductionlevelandavoidproblemswithexcessemployment.EstablishingasubsidiaryinanothercountrydefeatstheideaofmaintainingtheproductionlevelintheU.S.Manyemployeeswouldprobablynotbewillingtorelocatewithoutsubstantialcompensation.Thefirmwouldnowhavetwoplantsinsteadofone,whichcouldpreventitfromfullycapitalizingoneconomiesofscale. Chapter1:MultinationalFinancialManagement:AnOverview15SmallBusinessDilemmaIneverychapterofthistext,someofthekeyconceptsareillustratedwithanapplicationtoasmallsportinggoodsfirmthatconductsinternationalbusiness.The“SmallBusinessDilemma”ineachchapterallowsstudentstorecognizethedilemmasandpossibledecisionsthatfirms(suchasthissportinggoodsfirm)mayfaceinaglobalenvironment.Forthischapter,theapplicationisonthedevelopmentofthesportinggoodsfirmthatwouldconductinternationalbusiness.DevelopingaMultinationalSportingGoodsCorporation1.IsSportsExportsCompanyamultinationalcorporation?ANSWER:SportsExportsCompanyisamultinationalcorporationbecauseitsellsproductstoforeigncountries.2.WhyaretheagencycostslowerforSportsExportsCompanythanformostMNCs?ANSWER:Agencycostsarelowerbecausetheownerandmanagerarethesame.Theownerdoesnothavemanagerswhoarebasedinothercountries(atleast,notinitially).3.DoesSportsExportsCompanyhaveanycomparativeadvantageoverpotentialcompetitorsinforeigncountriesthatcouldproduceandsellfootballsthere?ANSWER:TheSportsExportsCompanyhasacomparativeadvantageofapplyinganideathathasbeensuccessfulintheU.S.toothercountries.Iffootballbecomesapopularideainforeigncountries,theSportsExportsCompanywillbethefirstfirmtobenefitfromthepopularity.Whileotherfirmsmaythenattempttocopytheidea,theSportsExportsCompanywillhaveestablisheditselfasthemostwell-knowncompanyforsellingfootballsinforeignmarketsbythen.Also,theSportsExportsCompanyhasacomparativeadvantageovertheU.S.firmsthatproducethetop-of-the-linefootballsintheU.S.marketinthatitsellsthefootballsatalowprice.Thus,ifthesefirmsattempttopursuemoreinternationalbusinesssomeday,theywillnotnecessarilybeabletocompetewiththeSportsExportsCompanyinforeignmarkets.Thenamerecognitionmaynotbeaseffectiveinforeignmarketswheretheproducthasnotexisted.4.HowwouldJimLogandecidewhichforeignmarketshewouldattempttoenter?Shouldheinitiallyfocusononeormanyforeignmarkets?ANSWER:Jimwouldneedtoconsidervariousfactors,suchasthepotentialdemandforfootballsineachcountryandthepotentialdegreeofcompetitioninthatcountry.Hemayalsoconsiderthevolatilityoftheforeigncurrencyineachcountryrelativetothedollar.WhileJimmaysomedaywishtospreadhisinternationalbusinessacrossseveraldifferentcountries,heinitiallymayfocusononespecificcountrywhenestablishinghisinternationalbusiness.Itispossiblethathecouldfindadistributorofsportinggoodsthatwouldsellthefootballstoretailstoresinvariouscountries.Yet,hecouldfocusonprovidingthefootballstothedistributor,andwouldnothavetobetravelingtovariouscountries.5.TheSportsExportsCompanyhasnoimmediateplanstoconductdirectforeigninvestment.However,itmightconsiderotherlesscostlymethodsofestablishingitsbusinessinforeign Chapter1:MultinationalFinancialManagement:AnOverview15markets.WhatmethodsmighttheSportsExportsCompanyusetoincreaseitspresenceinforeignmarketsbyworkingwithoneormoreforeigncompanies?ANSWER:TheSportsExportsCompanymayconsideralicensingagreementwherebyithasaforeignfirmproduceitsfootballsandsellthem;thiswouldavoidthecostofexporting,butwouldresultinexpenseschargedbytheforeigncompany.AnalternativemethodwouldbeajointventureinwhichtheSportsExportsCompanyproducesandexportsthefootballsexclusivelytoaspecificforeignfirmthatfocusesondistributingsportinggoodstoretailstoresinvariouscountries.Thatforeignfirmwouldchargeamark-upbeyondthepricethatitischargedwhenpurchasingthefootballs.InternationalInvestingProjectThisprojectisprovidedinAppendixDinthebackofthetext.Itmaybeusedasaprojectassignmentthatistobecompletedbytheendofthesemester.DiscussionintheBoardRoomThisexerciseisprovidedinAppendixEinthebackofthetext.Itmaybeusedasaprojectassignmentthatistobecompletedbytheendofthesemester.PossibleanswerstothediscussionquestionsareprovidedattheendofthisInstructor’sManual(afterChapter21).Ifyouusethisappendixforin-classdiscussiononaweeklybasis,youmaybenefitfrommakingacopyofthediscussionquestionsandpossibleanswersprovidedattheendoftheInstructorsManualsothatyouhaveeasyaccesstothisexerciseeachweekinclass.