Solution Manual For International Financial Management, 14th Edition by Jeff Madura | Complete Verified Chapter's |
Solution Manual For International Financial Management, 14th Edition by Jeff Madura | Complete Verified Chapter's |
Solution Manual For International Financial Management, 14th ...
Solution Manual For International Financial Management 14th Edition by Jeff Madura Solution Manual For International Financial Management 14th Edition by Jeff Madura Chapter 1 Multinational Financial Management: An Overview Lecture Outline Managing the MNC How Business Disciplines Are Used to Manage the MNC Agency Problems Management Structure of an MNC Why Firms Pursue International Business Theory of Comparative Advantage Imperfect Markets Theory Product Cycle Theory Methods to Conduct International Business International Trade Licensing Franchising Joint Ventures Acquisitions of Existing Operations Establishing New Foreign Subsidiaries Summary of Methods Valuation Model for an MNC Domestic Valuation Model Multinational Valuation Model Uncertainty Surrounding an MNC’s Cash Flows How Uncertainty Affects the MNC’s Cost of Capital Organization of the Text Multinational Financial Management: An Overview 2 Chapter Theme This chapter introduces the multinational corporation as having similar goals to the purely domestic corporation, but a wider variety of opportunities. With additional opportunities come potential increased returns and other forms of risk to consider. The potential benefits and risks are introduced. Topics to Stimulate Class Discussion 1. What is the appropriate definition of an MNC? 2. Why does an MNC expand internationally? 3. What are the risks of an MNC which expands internationally? 4. Why must purely domestic firms be concerned about the international environment? POINT/COUNTER -POINT: Should an MNC Reduce Its Ethical Standards to Compete Internationally? POINT: Yes. When a U.S. -based MNC competes in some countries, it may encounter some business norms there that are not allowed in the U.S. For example, when competing for a government contract, firms might provide payoffs to the government officials who will make the decision. Yet, in the United States, a firm will sometimes take a client on an expensive golf outing or provide skybox tickets to events. This is no different than a payoff. If the payoffs are bigger in some foreign countries, the MNC can compete only by matching the payoffs provided by its competitors. COUNTER -POINT: No. A U.S.-based MNC should maintain a standard code of ethics that applies to any country, even if it is at a disadvantage in a foreign country that allows activities that might be viewed as unethical. In this way, the MNC establishes more credibility worldwide. WHO IS CORRECT? Use the Internet to learn more about this issue. Which argument do you support? Offer your own opinion on this issue. ANSWER: The issue is frequently discussed. It is easy to suggest that the MNC should maintain a standard code of ethics, but in reality, that means that it will not be able to compete in some cases. For example, even if it submits the lowest bid on a specific foreign government project, it will not receive the bid without a payoff to the foreign government officials. The issue is especially a concern for large projects that may generate substantial cash flows for the firm that is chosen to do the project. Ideally, the MNC can clearly demonstrate to whoever oversees the decision process that it deserves to be selected. If there is just one decision -maker with no oversight, an MNC can not ensure that the decision will be ethical. But if the decision -maker must be accountable to a department who oversees the decision, the MNC may be able to prompt the department to ensure that the process is ethical. Multinational Financial Management: An Overview 3 Answers to End of Chapter Questions 1. Agency Problems of MNCs. a. Explain the agency problem of MNCs. ANSWER: The agency problem reflects a conflict of interests between decision -making managers and the owners of the MNC. Agency costs occur in an effort to assure that managers act in the best interest of the owners. b. Why might agency costs be larger for an MNC than for a purely domestic firm? ANSWER: The agency costs are normally larger for MNCs than purely domestic firms for the following reasons. First, MNCs incur larger agency costs in monitoring managers of distant foreign subsidiaries. Second, foreign subsidiary managers raised in different cultures may not follow uniform goals, and some managers may focus on satisfying respective employees. Third, the sheer size of the larger MNCs would also create large agency problems. 2. Comparative Advantage. a. Explain how the theory of comparative advantage relates to the need for international business. ANSWER: The theory of comparative advantage implies that countries should specialize in production, thereby relying on other countries for some products. Consequently, there is a need for international business. b. Explain how the product cycle theory relates to the growth of an MNC. ANSWER: The product cycle theory suggests that at some point in time, the firm will attempt to capitalize on its perceived advantages in markets other than where it was initially established. 3. Imperfect Markets. a. Explain how the existence of imperfect markets has led to the establishment of subsidiaries in foreign markets. ANSWER: Because of imperfect markets, resources cannot be easily and freely retrieved by the MNC. Consequently, the MNC mus t sometimes go to the resources rather than retrieve resources (such as land, labor, etc.). b. If perfect markets existed, would wages, prices, and interest rates among countries be more similar or less similar than under conditions of imperfect markets? Why? ANSWER: If perfect markets existed, resources would be more mobile and could therefore be transferred to those countries more willing to pay a high price for them. As this occurred, shortages of resources in any particular country would be alleviated and the costs of such resources would be similar across countries. 4. International Opportunities.
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