MCQ1 Flashcards
With regard to corporate goals, an MNC is mostly concerned with maximizing ____, and a purely domestic
firm is mostly concerned with maximizing ____.
a. shareholder wealth; short-term earnings
b. shareholder wealth; shareholder wealth
c. short-term earnings; sales volume
d. short-term earnings; shareholder wealth
ANS: B
For the MNC, agency costs are typically:
a. non-existent.
b. larger than agency costs of a small purely domestic firm.
c. smaller than agency costs of a small purely domestic firm.
d. the same as agency costs of a small purely domestic firm.
ANS: B
Which of the following could reduce agency problems for an MNC?
a. stock options as managerial compensation.
b. hostile takeover threat.
c. investor monitoring.
d. all of the above are forms of corporate control that could reduce agency problems for an
MNC.
ANS: D
The Sarbanes-Oxley Act improves corporate governance of MNCs because it:
a. makes executives more accountable for verifying financial statements
b. eliminates stock options as a form of compensation
c. ties executive compensation to firm performance
d. places a limit on the amount of funds that managers can spend
ANS: A
Which of the following is an example of direct foreign investment?
a. exporting to a country.
b. establishing licensing arrangements in a country.
c. purchasing existing companies in a country.
d. investing directly (without brokers) in foreign stocks.
ANS: C
Which of the following is not a way in which agency problems can be reduced through corporate control?
a. executive compensation.
b. threat of hostile takeover.
c. acquisition of a foreign subsidiary.
d. monitoring by large shareholders.
ANS: C
International trade:
a. is a relatively conservative approach to foreign market penetration.
b. entails minimal risk.
c. does not require large amount of investment.
d. all of the above.
ANS: D
The MNC’s value depends on all of the following, except:
a. MNC’s required rate of return
b. Amount of MNC’s cash flows in particular currency
c. The exchange rate at which cash flows are converted to dollars
d. The value of MNC depends on all of the above factors
ANS: D
Which of the following is not an example of political risk?
a. Government may impose taxes on subsidiary
b. Government may impose barriers on subsidiary
c. Consumers may boycott the MNC
d. Consumers’ income levels will decrease, thus decreasing consumption.
ANS: D
Assume that Live Co. has expected cash flows of $200,000 from domestic operations, SF200,000 from Swiss
operations, and 150,000 euros from Italian operations at the end of the year. The Swiss franc’s value
and euro’s value are expected to be $.83 and $1.29 respectively, at the end this year. What are the
expected dollar cash flows of Live Co?
a. $200,000
b. $559,500
c. $582,500
d. $393,500
ANS: B
Saller Co. has a subsidiary in Mexico. The expected cash flows in pesos to be received in the future from this
subsidiary have not changed since last month, but the valuation of Saller Co. has declined since last
month. What could’ve caused this decline in value?
a. A weaker Mexican economy
b. Lower Mexican interest rates
c. Depreciation of the Mexican peso
d. Appreciation of the Mexican peso.
ANS: C
Agency costs faced by multinational corporations (MNCs) may be larger than those faced by purely domestic
firms because
a. Monitoring of managers located in foreign countries is more difficult.
b. Foreign subsidiary managers raised in different cultures may not follow uniform goals.
c. MNCs are relatively large.
d. All of the above
e. A and B only
ANS: D
The most risky method(s) by which firms conduct international business is (are):
a. Franchising.
b. The acquisitions of existing operations.
c. The establishment of new subsidiaries.
d. All of the above
e. B and C only
ANS: E
