Vikas assist

Vikas assist

FIN 535 Week 1 eActivity Use the Internet and the links below to assess business risk in Thailand. When researching and in your assessment, focus on the following areas: corruption, political stability, exchange rate stability, regulatory oversight, freedom of the press, and rule of law. Bureau of Economic Analysis: www.bea.gov Transparency International Corruptions Perceptions Index: http://www.transparency.org/cpi2013/results (Note: The Website works optimally when accessed using Internet Explorer or Google Chrome.) Ranking of Economies-World Bank http://www.doingbusiness.org/rankings IMF Home Page http://www.imf.org/external/index.htm Country Risk Classification-OECD http://www.oecd.org/tad/xcred/crc.htm World Trade Organization Home Page http://www.wto.org/ http://www.valueline.com/Stocks/Industries/Industry_Analysis__Recreation.aspx Consider the following as you complete your simple country risk assessment:
Where Thailand stands relative to other countries as far as corruption and ease of doing business is concerned. Where Thailand stands relative to other countries when it comes to corruption, political stability, exchange rate stability, regulatory oversight, freedom of the press, and the rule of law. The reasons why the above factors and others warrant careful analysis.
Week 1 Discussion “Doing International Business” Please respond to the following:
From the case study and e-Activity, differentiate between the major benefits and potential pitfalls of sourcing from Thailand for Blades after conducting your country risk assessment. Determine whether or not there are other Asian countries that could provide Blades with the same or higher economic benefits with less risk. Provide a rationale for your response.
From the case study, recommend two (2) approaches that Blades could take in order to pursue market entry into Thailand. Determine the approach that would carry the smaller risk and the approach that would carry the bigger risk. Provide a rationale for your response.
Week 1 Homework Homework Problems for Chapter 1 1. Chapter 1. Questions and Applications: 14 (page 24). 2. Chapter 1. Questions and Applications: 17 (page 24). 3. Chapter 1. Questions and Applications: 29 (page 26). 4. Chapter 1. Questions and Applications: 36 (page 27).
page 24 Part 1: The International Financial Environment 11. Exposure to Exchange Rates McCanna Corp., a U.S. firm, has a French subsidiary that produces wine and exports to various European countries. All of the countries where it sells its wine use the euro as their currency, which is the same currency used in France. Is McCanna Corp. exposed to exchange rate risk? 12. Macro versus Micro Topics Review the Table of Contents and indicate whether each of the chapters from Chapter 2 through Chapter 21 has a macro or micro perspective. 13. Methods Used to Conduct International Business Duve, Inc., desires to penetrate a foreign market with either a licensing agreement with a foreign firm or by acquiring a foreign firm. Explain the dif- ferences in potential risk and return between a licens- ing agreement with a foreign firm and the acquisition of a foreign firm. 14. International Business Methods Snyder Golf Co., a U.S. firm that sells high-quality golf clubs in the United States, wants to expand internationally by sell- ing the same golf clubs in Brazil. a. Describe the tradeoffs that are involved for each method (such as exporting, direct foreign investment, etc.) that Snyder could use to achieve its goal. b. Which method would you recommend for this firm? Justify your recommendation. 15. Impact of Political Risk Explain why political risk may discourage international business. 16. Impact of September 11 Following the terrorist attack on the United States, the valuations of many MNCs declined by more than 10 percent. Explain why the expected cash flows of MNCs were reduced, even if they were not directly hit by the terrorist attacks. Advanced Questions 17. International Joint Venture Anheuser-Busch (which is now part of AB InBev due to a merger), the producer of Budweiser and other beers, has engaged in a joint venture with Kirin Brewery, the largest brewery in Japan. The joint venture enabled Anheuser-Busch to have its beer distributed through Kirin’s distribution channels in Japan. In addition, it could utilize Kirin’s facilities to produce beer that would be sold locally. In return, Anheuser-Busch provided information about the American beer market to Kirin. a. Explain how the joint venture enabled Anheuser- Busch to achieve its objective of maximizing share- holder wealth. b. Explain how the joint venture limited the risk of the international business. c. Many international joint ventures are intended to circumvent barriers that normally prevent foreign competition. What barrier in Japan did Anheuser- Busch circumvent as a result of the joint venture? What barrier in the United States did Kirin circumvent as a result of the joint venture? d. Explain how Anheuser-Busch could have lost some of its market share in countries outside Japan as a result of this particular joint venture. 18. Impact of Eastern European Growth The managers of Loyola Corp. recently had a meeting to discuss new opportunities in Europe as a result of the recent integration among Eastern European countries. They decided not to penetrate new markets because of their present focus on expanding market share in the United States. Loyola’s financial managers have devel- oped forecasts for earnings based on the 12 percent market share (defined here as its percentage of total European sales) that Loyola currently has in Eastern Europe. Is 12 percent an appropriate estimate for next year’s Eastern European market share? If not, does it likely overestimate or underestimate the actual Eastern European market share next year? 19. Valuation of an MNC Birm Co., based in Ala- bama, is considering several international opportunities in Europe that could affect the value of its firm. The valuation of its firm is dependent on four factors: (1) expected cash flows in dollars, (2) expected cash flows in euros that are ultimately converted into dollars, (3) the rate at which it can convert euros to dollars, and (4) Birm’s weighted average cost of capital. For each opportunity, identify the factors that would be affected. a. Birm plans a licensing deal in which it will sell technology to a firm in Germany for $3 million; the payment is invoiced in dollars, and this project has the same risk level as its existing businesses. b. Birm plans to acquire a large firm in Portugal that is riskier than its existing businesses. c. Birm plans to discontinue its relationship with a U.S. supplier so that it can import a small amount of supplies (denominated in euros) at a lower cost from a Belgian supplier. d. Birm plans to export a small amount of materials to Ireland that are denominated in euros. 20. Assessing Motives for International Business Fort Worth, Inc., specializes in manufacturing some
page 26 Part 1: The International Financial Environment into U.S. dollars, its expected net cash flows in Aus- tralian dollars after converting them into U.S. dollars, and so on. Explain how and why the valuation of Ya- hoo! would change if most investors suddenly expected that the dollar would weaken against most currencies over time. 24. Uncertainty Surrounding an MNC’s Valuation Carlisle Co. is a U.S. firm that is about to purchase a large company in Switzerland at a purchase price of $20 million. This company produces furniture and sells it locally (in Switzerland), and it is expected to earn large profits every year. The company will become a subsidiary of Carlisle and will periodically remit its excess cash flows due to its profits to Carlisle Co. As- sume that Carlisle Co. has no other international business. Carlisle has $10 million that it will use to pay for part of the Swiss company and will finance the rest of its purchase with borrowed dollars. Carlisle Co. can obtain supplies from either a U.S. supplier or a Swiss supplier (in which case the payment would be made in Swiss francs). Both suppliers are very reputable and there would be no exposure to country risk when using either supplier. Is the valuation of the total cash flows of Carlisle Co. more uncertain if it obtains its supplies from a U.S. firm or a Swiss firm? Explain briefly. 25. Impact of Exchange Rates on MNC Value Olmsted Co. has small computer chips assembled in Poland and transports the final assembled products to the parent, where they are sold by the parent in the United States. The assembled products are invoiced in dollars. Olmsted Co. uses Polish currency (the zloty) to produce these chips and assemble them in Poland. The Polish subsidiary pays the employees in the local cur- rency (zloty), and Olmsted Co. finances its subsidiary operations with loans from a Polish bank (in zloty). The parent of Olmsted will send sufficient monthly pay- ments (in dollars) to the subsidiary in order to repay the loan and other expenses incurred by the subsidiary. If the Polish zloty depreciates against the dollar over time, will that have a favorable, unfavorable, or neutral effect on the value of Olmsted Co.? Briefly explain. 26. Impact of Uncertainty on MNC Value Min- neapolis Co. is a major exporter of products to Canada. Today, an event occurred that has increased the un- certainty surrounding the Canadian dollar’s future value over the long term. Explain how this event can affect the valuation of Minneapolis Co. 27. Exposure of MNCs to Exchange Rate Movements Arlington Co. expects to receive 10 million euros in each of the next 10 years. It will need to obtain 2 million Mexican pesos in each of the next 10 years. The euro exchange rate is presently val- ued at $1.38 and is expected to depreciate by 2 percent each year over time. The peso is valued at $.13 and is expected to depreciate by 2 percent each year over time. Review the valuation equation for an MNC. Do you think that the exchange rate movements will have a favorable or unfavorable effect on the MNC? 28. Impact of the Credit Crisis on MNC Value Much of the attention to the credit crisis was focused on its adverse effects on financial institutions. Yet, many other types of firms were affected as well. Explain why the numerator of the MNC valuation equation was affected during the October 6–10, 2008, period. Explain how the denominator of the MNC valuation equation was affected during this period. 29. Exposure of MNCs to Exchange Rate Movements Because of the low labor costs in Thailand, Melnick Co. (based in the United States) recently established a major research and development subsidiary there that it owns. The subsidiary was cre- ated to improve new products that the parent of Melnick can sell in the United States (denominated in dollars) to U.S. customers. The subsidiary pays its local employees in baht (the Thai currency). The subsidiary has a small amount of sales denominated in baht, but its expenses are much larger than its revenue. It has just obtained a large loan denominated in baht that will be used to expand its subsidiary. The business that the parent of Melnick Co. conducts in the United States is not exposed to exchange rate risk. If the Thai baht weakens over the next 3 years, will the value of Melnick Co. be favorably affected, unfavorably affected, or not affected? Briefly explain. 30. Shareholder Rights of Investors in MNCs MNCs tend to expand more when they can more easily access funds by issuing stock. In some countries, shareholder rights are very limited, and the MNCs have limited ability to raise funds by issuing stock. Explain why access to funding is more severe for MNCs based in countries where shareholder rights are limited. 31. MNC Cash Flows and Exchange Rate Risk Tuscaloosa Co. is a U.S. firm that assembles phones in Argentina and transports the final assembled products to the parent, where they are sold by the parent in the United States. The assembled products are invoiced in dollars. The Argentine subsidiary obtains some mate- rial from China, and the Chinese exporter is willing to page 27 Chapter 1: Multinational Financial Management: An Overview accept Argentine pesos as payment for these materials that it exports. The Argentine subsidiary pays its em- ployees in the local currency (pesos), and finances its operations with loans from an Argentine bank (in pe- sos). Tuscaloosa Co. has no other international busi- ness. If the Argentine peso depreciates against the dollar over time, will that have a favorable, unfavorable, or neutral effect on Tuscaloosa Co.? Briefly explain. 32. MNC Cash Flows and Exchange Rate Risk Asheville Co. has a subsidiary in Mexico that develops software for its parent. It rents a large facility in Mexico and hires many people in Mexico to work in the facil- ity. Asheville Co. has no other international business. All operations are presently funded by Asheville’s par- ent. All the software is sold to U.S. firms by Asheville’s parent and invoiced in U.S. dollars. a. If the Mexican peso appreciates against the dollar, does this have a favorable effect, unfavorable effect, or no effect on Asheville’s value? b. Asheville Co. plans to borrow funds to support its expansion in the United States. The Mexican interest rates are presently lower than U.S. interest rates, so Asheville obtains a loan denominated in Mexican pesos in order to support its expansion in the United States. Will the borrowing of pesos increase, decrease, or have no effect on its exposure to exchange rate risk? Briefly explain. 33. Estimating an MNC’s Cash Flows Biloxi Co. is a U.S. firm that has a subsidiary in China. The sub- sidiary reinvests half of its net cash flows into opera- tions and remits half to the parent. Biloxi Co. has expected cash flows from domestic business equal to $10,000,000 and the Chinese subsidiary is expected to generate 100 million Chinese yuan at the end of the year. The expected value of yuan at the end of the year is $.13. What are the expected dollar cash flows of the parent of Biloxi Co. in one year? 34. Uncertainty Surrounding an MNC’s Cash Flows a. Assume that Bangor Co. (a U.S. firm) knows that it will have cash inflows of $900,000 from domestic op- erations, cash inflows of 200,000 Swiss francs due to exports to Swiss operations, and cash outflows of 500,000 Swiss francs at the end of the year. While the future value of the Swiss franc is uncertain because it fluctuates, your best guess is that the Swiss franc’s value will be $1.10 at the end this year. What are the ex- pected dollar cash flows of Bangor Co? b. Assume that Concord Co. (a U.S. firm) is in the same industry as Bangor Co. There is no political risk that could have any impact on the cash flows of either firm. Concord Co. knows that it will have cash inflows of $900,000 from domestic operations, cash inflows of 700,000 Swiss francs due to exports to Swiss operations, and cash outflows of 800,000 Swiss francs at the end of the year. Is the valuation of the total cash flows of Concord Co. more uncertain or less uncertain than the total cash flows of Bangor Co.? Explain briefly. 35. Valuation of an MNC Odessa Co., Midland Co., and Roswell Co. are U.S. firms in the same industry and have the same valuation as of yesterday, based on the present value of future cash flows of each company. Odessa Co. obtains a large amount of its supplies in- voiced in euros from European countries, and all of its sales are invoiced in dollars. Midland has a large sub- sidiary in Europe that does all of its business in euros and remits profits to the U.S. parent every year. Ros- well Co. has no international business. Assume that as of this morning an event occurred that you believe will cause a substantial depreciation of the euro against the dollar over time. Assume that this event will not change the business operations of the firms mentioned in this question. Which firm will have the highest val- uation based on your expectations? Briefly explain. 36. Impact of Uncertainty on an MNC’s Valuation Assume that Alpine Co. is a U.S. firm that has direct foreign investment in Brazil as a result es- tablishing a subsidiary there. Political conditions have changed in Brazil, but the best guess by investors of the future cash flows per year for Alpine Co. has not changed. Yet, there is more uncertainty surrounding the best guess of Alpine’s cash flows. In other words, the distribution of possible outcomes above and below the best guess has expanded. Would the change in uncertainty cause the prevailing value of Alpine Co. to increase, decrease, or remain unchanged? Briefly explain. 37. Exposure of MNC Cash Flows a. Rochester Co. is a U.S. firm that has a language institute in France. This institute attracts Americans who want to learn the French language. Rochester Co. charges tuition to the American students in dollars. It expects that its dollar revenue from charging tuition will be stable over each of the next several years. Its total expenses for this project are as follows. It rents a facility in Paris, and makes a large rent payment each month in euros. It also hires several French citizens as C

Is this the question you were looking for? If so, place your order here to get started!