Taiwanese Finance Assingment Help With Solution
PART A: MULTIPLE-CHOICE QUESTIONSare designed to test general understanding of a variety of core concepts andtheir applications.
1. ___ are financial institutions involved in borrowing and lending transactions in currencies other than their domestic currencies.
B) Foreign banks
C) Market makers
D) Foreign exchange dealers
2. The most critical feature of Euro-markets is
A) Lack of regulation
B) High lending interest rates are available
C) Lower risk presented than in other markets
D) All of the above
3. A Canadian-based MNC needs long-term capital to invest in Italy. The company tries to avoid the regulatory constraints found in debt issuance in Canada. While it wants to attract foreign investors, it prefers the issue to be sold in dollars. This company should issue
A) Euro-Canadian dollar commercial paper
B) Foreign bonds
C) Euro-Canadian dollar floating-rate notes
D) Euro bonds
4. A Maple bond is
A) A dollar-denominated bond issued by a non-Canadian company
B) A bond issued by a Canadian company
C) A Eurobond issued by a Canadian company
D) A Euro-denominated Eurobond issued by a non-Canadian company
5. A “global bond” issue
A) Is a very large international bond offering by several borrowers pooled together
B) Has higher yields for investors
C) Is simultaneously sold in several capital markets around the world by one issuer
D) Has a lower liquidity
6. Which of the following is true regarding euro-credits?
A) They are short- or medium-term loans of Eurocurrency extended by euro-banks
B) They are often syndicated loans
C) They are denominated in currencies other than the home currency of the euro-banks
D) All of the above
(The following information relates to Questions 7 and 8)
In the London market, Rolls Royce stock closed at £0.875 per share on April 17, 2013. Rolls Royce traded as depository receipts in the OTC market in US. Five underlying Rolls Royce shares are packaged into one ADR. On April 17, 2013, the spot exchange rate between British pound and USD was £0.6366/$.
7. The no-arbitrage US price of one ADR is
8. If the Rolls Royce ADRs are trading $5.75 when the underlying shares are trading in London at £0.875, ignoring transaction costs, the arbitrage trading profit will be
9. The cost of equity is more difficult to determine than the cost of debt because
A) Cash flows to equity-holders are not contractually set creating the timing uncertainty
B) Discount rate used to calculate cost of equity is not firmly set as the one for cost of debt
C) Transaction costs of issuing equity are not so easy to establish as for debt issuance
D) The cost of equity is subject to more contingencies than the cost of debt
10. Other things being equal, the financial leverage of MNCs will be ____ if the governments of their home countries are ___ likely to rescue them (in the event of failure), and if their home countries are ___ likely to experience a recession.
A) Higher; more; less
B) Higher; less; less
C) Lower; less; more
D) Lower; more; more
11. The risk-free rate of interest is 4%. The return on the stock market as a whole is expected to be 10%. Given the required rate of return on MNC stock is 12%, according to the capital asset pricing model (CAPM), what is its systematic risk?
Hint: Rj = RF + βj × [E(Rm) – RF]
12. The capital structure for an MNC refers to
A) The debt-equity ratio
B) A description of how the company is financed
C) Both (A) and (B)
D) Neither (A) nor (B)
13. Use the following data to calculate the weighted average cost (WACC) for XYZ Inc.
Cost of equity 17%
Cost of debt 8%
Cost of preferred stock 10%
Value of current assets $15,000,000
Value of fixed assets $55,000,000
Corporate tax rate 25%
Personal tax rate 37%
Value of equity $20,000,000
Value of debt $50,000,000
Value of preferred stock $0
14. In general, international diversification of investment (e.g. FDI) allows MNCs to benefit from
A) The asset diversification effect and less risk
B) The currency diversification and less risk
C) A greater variety of investment opportunities and less risk
D) The currency diversification effect and the asset diversification effect
15. Standard financial theory advocates that MNCs separate their financing and investment decisions,
A) But MNCs particularly often reject this advice and take chances with currency exposure by combining investment and financing decisions
B) But currency risk requires firms take into account of financing opportunities with consideration of investment opportunities
C) So MNCs generally do not consider decisions on where and how to invest separately from their decisions on how to finance their investments
D) So MNCs often finance their capital needs in one currency and make their investments in another currency
16. To pursue ___ or ___ financing is the very first fundamental decision that an MNC has to make when considering financing.
A) Internal; external
B) Debt; equity
C) Public; private
D) Short-term; long-term
17. One of the primary obstacles for cross-border mergers and acquisitions is
A) Integrating the overlapping product lines of the firm involved in the merger or acquisition
B) The regulatory requirements that must be met in each country where a firm involves in the merger or acquisition
C) Deciding which currency that two firms that do not use the same currency will use after the merger or acquisition is completed
D) Consolidating the separate identities of the firms involved in the merger or acquisition into a single identity
18. Typically, joint ventures conduct
A) All of the business activities allowed where the joint venture operates, but not financing activities that are conducted separately by the individual partners setting the joint venture
B) Only the business activities that cannot be performed by the entities creating the joint venture
C) A full spectrum of needed business activities including financing, production and distribution
D) Only the business activities that the joint venture can perform more efficiently than the entities creating the joint venture
19. An MNC adopting specific policies on production and logistic to increase its bargaining position can be an effective way for managing country risk. The techniques may include
A) Control of technology
B) Local sourcing
C) Facility location
D) All of the above
20. Which of the flowing merger and acquisition is viable?
A) VAT = $400; VA = $200; VT = $205
B) VAT = $390; VA = $200; VT = $190
C) VAT = $410; VA = $200; VT = $190
D) VAT = $600; VA = $400; VT = $220
21. What is a “Greenfield” project?
A) An environmentally-friendly project
B) A project that is located in a foreign country and encouraged by that country
C) A capital investment involves an MNC and a firm in another country
D) A project that starts from scratch and produces the facility that is needed
22. If the foreign currency ___ by the time the acquiring firm makes payment, the acquisition will be more costly. In the meanwhile, the cost of the acquisition changes ___ the change in the exchange rate.
A) Appreciates; in the same proportion as
B) Depreciates; in the same proportion as
C) Appreciates; by a lesser percentage than
D) Depreciates; by a greater percentage than
23. Which of the following is not an advantage of international acquisitions over the establishment of a new subsidiary?
A) The firm can immediately expand its international business
B) The firm benefits from existing customer relationships
C) International acquisitions are generally cheaper than the establishment of a new subsidiary
D) An international acquisition typically generates quicker and larger cash flows than the establishment of a new subsidiary
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A Canadian-based MNC is considering a capital investment in England. The net cash flows of the project are estimated as below.
Year 0 1 2 3
Net Cash Flows -£25 million £8 million £11 million £15 million
The current spot rate is $1.5751/£. While the Canadian interest rate is 2.8%, it is 4% in England. The Canadian required rate of return is 10%.
24. How much does this project cost now?
A) $31.502 million
B) $39.378 million
C) $15.872 million
D) $25.723 million
25. Using IRP, what is the expected spot rate (£/$) for Year 3?
Hint: with S = $/£,
26. What is the expected cash flow of this project in Year 2?
A) $17.591 million
B) $19.551 million
C) $22.581 million
D) $16.928 million
27. Based on the home currency approach, should the project be undertaken? Why?
A) No; NPV = -$2.257 million
B) Yes; NPV = $5.714 million
C) Yes; NPV = $12.825 million
D) Yes; NPV = $3.079 million
28. Using IFE, what is the compatible required rate of return on British pound cash flows?
29. After estimating the relevant cash flows associated with a new project, we usually need to convert all these prospective cash flows into today’s dollars. Why?
A) Allow time value concepts to be incorporated in the final decision
B) The decision is being made today
C) Future cash flows can then be compared with the initial investment made at time zero
D) All of the above
30. How can a firm get the most value out of a project that does not perform as expected after being undertaken?
A) Continue the project and hope for more value than anticipated
B) Change the inputs for the project to increase value
C) Transfer the project to a subsidiary in a low-cost country
D) Sell the assets purchased from the project for salvage value
31. When an MNC forms a foreign subsidiary and that subsidiary is eligible for subsidies in the country where it will operate, how is the capital budgeting process for that subsidiary and its project affected?
A) Local subsidies are integrated in NPV calculations, so no additional consideration needs to be given in the capital budgeting process
B) Since local subsidies are subject to political risk and can be taken away as easily as they are granted, local subsidies are not considered in the capital budgeting process
C) When local subsidies are available, the capital budgeting process is often altered to include consideration of the cash flows that will be generated by those subsidies
D) Local subsidies are generally unavailable to subsidiaries, so local subsidies are not considered in the capital budgeting process by MNCs
32. Differences in NPV of a proposed project between parent and subsidiary can arise from
A) Political risk or currency risk
B) Cash flow or currency asymmetries
C) Cash flow or cost of capital asymmetries
D) Political risk or economic risk
33. How can a firm arrange short-term financing in a way to limit its currency risk?
A) It can borrow more than it currently needs so that future cash needs are met
B) It can arrange for a line of credit to provide for future financing needs
C) It can coordinate its financing cash flow and its operational cash flow
D) It can sell debt instruments (e.g. bonds) in its home currency
34. The most liquid asset and a necessity for working capital transactions is
C) Marketable securities
D) Accounts receivable
35. A pays B $140, A pays C $200, and B pays C $60. After netting, A will pay C
36. In making short-term investments, firms consider
A) Creditworthiness of the company and the interest rate
B) Maturity, liquidity, risk and flexibility
C) Broker’s recommendation and competing opportunities
D) Opportunity costs and flexibility
37. In traditional working capital analysis, holding a large cash balance is a ___ strategy because it ___.
A) Positive; reduces the transaction costs involved in liquidating assets to raise cash
B) Positive; relieves the firm from having to obtain short-term financing
C) Negative; means that the cash is not earning a return
D) Negative; imposes additional currency risk on the firm
(The following information relates to Questions 38 and 39)
Your firm has a line of credit with a stated interest rate of 10% per annum. Your bank requires a 25% compensating balance.
38. Suppose that your firm needs $10,000 for three months to finance a temporary deficit. How much must your firm borrow in order to obtain the needed funds?
Hint: RB = stated rate/(1-compensated balance %)
39. If the compensating balance pays interest of 4%. Assume that the money needed by your firm is only for three months. What is the annual percentage interest rate paid by your firm?
Hint: APR = (Financing cost/Usable funds) × (Annualized factor)
40. Your company is considering granting credit to a new customer. On each non-delinquent sale, you receive revenues with a present value of $1,200 and incur costs with a present value of $1,050. The default percentage rate is 10%. Should you grant the credit? Why?
A) No because expected profit = -$25
B) No because expected profit = -$20
C) Yes because expected profit = $150
D) Yes because expected profit = $30
Hint: E(π) = p×PV(Rev – Cost) – (1- p)×PV(Cost)
41. A Canadian MNC borrows Japanese yen for one year at 8%. Over the year, the yen is expected to appreciate by 5% relative to dollar. What is the “ex ante” financing cost?
Hint: rB = (1 + rB*)(1 + %∆s) – 1
42. What are the unique causes of delay that may be encountered in shipping goods by cargo ship?
A) Loading and unloading and transportation to and from the ship
B) The time required for the goods to clear customs
C) Wars and political unrest
D) Transit workers’ strikes
43. If a bank issuing a letter of credit accepts the time draft that is issued in connection with the letter of credit, a ___ results.
A) Sight draft
B) Banker’s acceptance
C) Bill of lading
D) Transfer of title
44. When an importer receives title to the goods shipped by the exporter only upon the importer’s payment for those goods, the transaction is referred to as
A) Documents against acceptance
B) Documents against payment
C) An open account
D) A consignment
45. In economic terms, ____ occur when the benefit of defaulting on a payment is less than the present value of future benefits in a relationship.
A) Investment risks
B) Barter transactions
C) Open accounts
46. A consignment arrangement allows
A) An exporter to reduce the default risks that the goods exported
B) An importer to use its bargaining power to get the lowest price that the exporter offers
C) An importer to acquire goods for immediate resale without increasing inventory risk
D) An exporter to avoid the delays that can be experienced in getting foreign goods cleared through customs
PART B: DISCUSSION QUESTIONS are designed to encourage critical thinking for real-worldissues.
1. A Taiwanese LCD manufacturer is currently experiencing a booming market for its products. As with all growing companies, its financing needs have significantly increased. Both current and fixed assets are increasing each year triggering financing needs. The CFO is debating with his team about the merits of current assets with short-term financing. What are advantages and disadvantages of this approach?
2. Lehigh Co. established a subsidiary in Switzerland that was performing below the cash flow projections developed before the subsidiary was established. Lehigh anticipated that future cash flows would also be lower than the original cash flow projections. Consequently, Lehigh decided to inform several potential acquiring firms of its plan to sell the subsidiary. Lehigh then received a few bids. Even the highest bid was very low, but Lehigh accepted the offer. It justified its decision by stating that any existing project whose cash flows are not sufficient to recover the initial investment should be divested. Comment on this statement.
- Pepperdine US Inc., considers obtaining 40% of its 1-year financing in Canadian dollars and 60% in Japanese yen. The forecasts of appreciation in the Canadian dollar and Japanese yen for the next year are as follows.
|Possible percentage change in the spot rate over the loan life||Probability of that percentage change in the spot rate occurring|
The interest rate on the Canadian dollar is 9% and the interest rate on the Japanese yen is 7%. Develop the possible effective financing rates of the overall portfolio and the probability of each possibility based on the use of joint probabilities.
Product Code :Fin227
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