Explain what is meant by the “weighted cost of capital” and how it is used in capital budgeting. What will be an ideal response? ANSWER The proportion of each type of financing (debt, equity and retained earnings) in the firm’s capital structure, and applying these percentages to the opportunity costs of capital associated with […]
The pricing of a product at each stage of production as the product moves through several stages is called A) transfer pricing. B) cost plus pricing. C) penetration pricing. D) monopolistic pricing. ANSWER A
Acquisition of an existing solar cell production plant would be considered A) a greenfield investment. B) foreign direct investment. C) anti-competitive under antitrust law. D) Both A and B. ANSWER B
A pollution haven is A) a place where people actually like pollution and view it as a positive externality. B) a location with weak environmental rules that attracts manufacturing companies due to decreased costs. C) a place that has very low worker wages. D) unattractive for multinational investment because of the ambient pollution. ANSWER […]
Firms undertake multinational operations in order to A) hire low-wage workers. B) manufacture in nations they have difficulty exporting to. C) obtain necessary factor inputs. D) All of the above ANSWER D
A multinational enterprise is defined as a company that A) controls production assets in more than one country. B) has board members from a variety of countries. C) exists primarily to avoid taxes. D) has stock that is publicly traded in many countries. ANSWER A
If the interest rate is 7% and the tax rate is 15%, what is the after -tax cost of capital for the firm? What will be an ideal response? ANSWER .07(1 – .15 ) = 5.95%
If a multinational is controlling funds, it will expect a subsidiary to remit a ________ portion of their earnings if this subsidiary has the opportunity to reinvest its earnings profitably. A) significant B) substantial C) smaller D) larger ANSWER C
A country that is a member of the World Trade Organization A) can use tariffs and quotas to limit trade. B) can establish preferential trading arrangements with other countries. C) is allowed to eliminate all of its tariffs and quotas. D) All of the above. ANSWER D
Risks faced by multinational corporations include A) changes in exchange rates. B) restrictions on ownership. C) repatriation of funds. D) cultural and religious philosophies. E) All of the above ANSWER E
