Concept explainers
To explain: The risks faced by a foreign affiliate of an MNC in today’s business world.
Introduction:
Multinational firm:
It is a business organization that operates in at least more than one country other than the one in which it has been incorporated.
Answer to Problem 1DQ
The common risks being faced by multinational corporation’s foreign affiliates are risks of finance as well as those associated with generating sales and maintaining market share. Apart from these risks, political and foreign exchange risks are also faced.
Explanation of Solution
A foreign affiliate of multinational corporations has to face several risks, such as that associated with sales generation, which refers to generating revenue at par with its competitors in the domestic market. The other common risk faced by foreign affiliates is to maintain market share, which refers to capturing a share in the targeted market through various marketing campaigns. The financial risk of raising funds for its operations is also faced by such affiliates. These are some risks that are also faced by a domestic firm as well.
In addition to these common risks, certain specific risks, such as the political instability of a country and frequently-renewed foreign policies, are also faced by such affiliates. Also, foreign affiliates are exposed to the risk of unstable and highly-volatile foreign exchange risks.
Want to see more full solutions like this?
Chapter 21 Solutions
Foundations of Financial Management
- A firm needs to raise $950,000 but will incur flotation costs of 5%. How much will it pay in flotation costs? Multiple choice question. $55,500 $50,000 $47,500 $55,000arrow_forwardWhile determining the appropriate discount rate, if a firm uses a weighted average cost of capital that is unique to a particular project, it is using the Blank______. Multiple choice question. pure play approach economic value added method subjective approach security market line approacharrow_forwardWhen a company's interest payment Blank______, the company's tax bill Blank______. Multiple choice question. stays the same; increases decreases; decreases increases; decreases increases; increasesarrow_forward
- For the calculation of equity weights, the Blank______ value is used. Multiple choice question. historical average book marketarrow_forwardA firm needs to raise $950,000 but will incur flotation costs of 5%. How much will it pay in flotation costs? Multiple choice question. $50,000 $55,000 $55,500 $47,500arrow_forwardQuestion Mode Multiple Choice Question The issuance costs of new securities are referred to as Blank______ costs. Multiple choice question. exorbitant flotation sunk reparationarrow_forward
- What will happen to a company's tax bill if interest expense is deducted? Multiple choice question. The company's tax bill will increase. The company's tax bill will decrease. The company's tax bill will not be affected. The company's tax bill for the next year will be affected.arrow_forwardThe total market value of a firm is calculated as Blank______. Multiple choice question. the number of shares times the average price the number of shares times the future price the number of shares times the share price the number of shares times the issue pricearrow_forwardAccording the to the Blank______ approach for project evaluation, all proposed projects are placed into several risk categories. Multiple choice question. pure play divisional WACC subjectivearrow_forward
- To invest in a project, a company needs $50 million. Given its flotation costs of 7%, how much does the company need to raise? Multiple choice question. $53.76 million $46.50 million $50.00 million $53.50 millionarrow_forwardWhile determining the appropriate discount rate, if a firm uses a weighted average cost of capital that is unique to a particular project, it is using the Blank______. Multiple choice question. economic value added method pure play approach subjective approach security market line approacharrow_forwardWhat are flotation costs? Multiple choice question. They are the costs incurred to issue new securities in the market. They are the costs incurred to insure the payment due to bondholders. They are the costs incurred to meet day to day expenses. They are the costs incurred to keep a project in the business.arrow_forward
Business/Professional Ethics Directors/Executives...AccountingISBN:9781337485913Author:BROOKSPublisher:Cengage