Solution:

1.	NZ$12,000,000 × $.60 = $7,200,000	$7,200,000/(1.18)	=	$6,101,695
2.	NZ$30,000,000 × $.60 = $18,000,000	$18,000,000/(1.18)2	=	$12,927,320
				$19,029,015

Break-even
salvage	= [Initial outlay − PV of cash flows] (1 + k) m
value
	= [$30,000,000 − $19,029,015] (1.18)2
	= $15,276,000
Break-even
salvage value	= $15,276,000/$.60 = NZ$25,459,999
in NZ$

PTS: 1

13. A firm considers an exporting project and will invoice the exports in dollars. The expected cash flows in dollars would be more difficult if the currency of the foreign country is ____.

a.	fixed
b.	volatile
c.	stable
d.	none of the above, as the firm is not exposed

ANS: B PTS: 1

14. If the parent charges the subsidiary administrative fees, the earnings from the project will appear low to the parent and high to the subsidiary.

a. True

b. False

ANS: F PTS: 1

15. Other things being equal, a blocked funds restriction is more likely to have a significant adverse effect on a project if the currency of that country is expected to ____ over time, and if the interest rate in that country is relatively ____.

a.	appreciate; low
b.	appreciate; high
c.	depreciate; high
d.	depreciate; low

ANS: D PTS: 1

16. If a multinational project is assessed from the subsidiary's perspective, withholding taxes are ignored for project assessment.

a. True

b. False

ANS: T PTS: 1

17. Other things being equal, firms from a particular home country will engage in more international acquisitions if they expect foreign currencies to ____ against their home currency, and if their cost of capital is relatively ____.

a.	appreciate; low
b.	appreciate; high
c.	depreciate; high
d.	depreciate; low

ANS: A PTS: 1

18. The discrepancy between the feasibility of a project in a host country from the perspective of the U.S. parent versus the subsidiary administering the project is likely to be greater for projects in countries where:

a.	the taxes are the same as in the U.S.
b.	there are no blocked fund restrictions.
c.	the currency of the host country is expected to depreciate consistently.
d.	none of the above; a discrepancy is not possible.

ANS: C PTS: 1

19. The break-even salvage value of a particular project is the salvage value necessary to:

a.	offset any losses incurred by the subsidiary in a given year.
b.	offset any losses incurred by the MNC overall in a given year.
c.	make the project have zero profits.
d.	make the project's return equal the required rate of return.

ANS: D PTS: 1

20. The impact of blocked funds on the net present value of a foreign project will be greater if interest rates are ____ in the host country and there are ____ investment opportunities in the host country.

a.	very high; limited
b.	very low; limited
c.	very low; numerous
d.	very high; numerous

ANS: B PTS: 1

21. One foreign project in Hungary and another in Japan had the same perceived value from the U.S. parent's perspective. Then, the exchange rate expectations were revised, upward for the value of the Hungarian forint and downward for the Japanese yen. The break-even salvage value for the project in Japan would now be ____ from the parent's perspective.

a.	negative
b.	higher than that for the Hungarian project
c.	lower than that for the Hungarian project
d.	the same as that for the Hungarian project
e.	A and C

ANS: B PTS: 1

22. Exchange rates for purposes of multinational capital budgeting:

a.	are very difficult to forecast.
b.	can be easily hedged with currency swaps.
c.	are unimportant, as they do not affect the cash flows of the multinational project.
d.	all of the above

ANS: A PTS: 1

23. A U.S.-based MNC has just established a subsidiary in Algeria. Shortly after the plant was built, the MNC determines that its exchange rate forecasts, which had previously indicated a slight appreciation in the Algerian dinar, were probably false. Instead of a slight appreciation, the MNC now expects that the dinar will depreciate substantially due to political turmoil in Algeria. This new development would likely cause the MNC to ____ its estimate of the previously computed net present value.

a.	lower
b.	increase
c.	lower, but not necessarily if the MNC invests enough in Algeria to offset the decrease in NPV
d.	increase, but not necessarily if the MNC reduces its investment in Algeria by an offsetting amount
e.	none of the above

ANS: A PTS: 1