Capital Budgeting for the Multinational Corporation
CHAPTER 17
Capital Budgeting for the Multinational Corporation
EASY (definitional)
17.1 The _______ is defined as the present value of future cash flows discounted at the project’s cost of capital minus the initial net cash outlay for the project.
a) net present value
b) equity-adjusted present value
c) cost of capital
d) value additive principle
Ans: a
Section: Net present value
Level: Easy
17.2 The most desirable property of the NPV criterion is that it evaluates
a) investments in the same way as the company’s subsidiaries
b) new market innovations that are simple to identify
c) investments the same way as the company’s shareholders
d) competitive advantages of the firm realistically
Ans: c
Section: Net present value
Level: Easy
17.3 When the introduction of a new product takes sales away from the firm’s existing products, it is known as _______.
a) cannibalization
b) sales creation
c) transfer pricing
d) opportunity cost
Ans: a
Section: Cannibalization
Level: Easy
17.4 When evaluating an investment, the MNC should consider the _______ cash flows generated by the project.
a) total
b) variable
c) incremental
d) fixed
Ans: c
Section: Incremental cash flows
Level: Easy
17.5 The _______ at which the company’s products or inputs are traded internally can significantly cause errors in evaluating the profitability of proposed investments.
a) export licenses
b) transfer prices
c) opportunity costs
d) market prices
Ans: b
Section: Transfer pricing
Level: Easy
17.6 If all funds in a project are expected to be blocked by government action in perpetuity, the value of the project is _______.
a) limited
b) unlimited
c) zero
d) difficult to determine
Ans: c
Section: Blocked funds
Level: Easy
17.7 __________ such as better quality, faster time to market, and higher customer satisfaction can have a significant impact on corporate cash flows.
a) Intangibles
b) Transfer prices
c) Economies of scale of
Capital Budgeting for the Multinational Corporation
EASY (definitional)
17.1 The _______ is defined as the present value of future cash flows discounted at the project’s cost of capital minus the initial net cash outlay for the project.
a) net present value
b) equity-adjusted present value
c) cost of capital
d) value additive principle
Ans: a
Section: Net present value
Level: Easy
17.2 The most desirable property of the NPV criterion is that it evaluates
a) investments in the same way as the company’s subsidiaries
b) new market innovations that are simple to identify
c) investments the same way as the company’s shareholders
d) competitive advantages of the firm realistically
Ans: c
Section: Net present value
Level: Easy
17.3 When the introduction of a new product takes sales away from the firm’s existing products, it is known as _______.
a) cannibalization
b) sales creation
c) transfer pricing
d) opportunity cost
Ans: a
Section: Cannibalization
Level: Easy
17.4 When evaluating an investment, the MNC should consider the _______ cash flows generated by the project.
a) total
b) variable
c) incremental
d) fixed
Ans: c
Section: Incremental cash flows
Level: Easy
17.5 The _______ at which the company’s products or inputs are traded internally can significantly cause errors in evaluating the profitability of proposed investments.
a) export licenses
b) transfer prices
c) opportunity costs
d) market prices
Ans: b
Section: Transfer pricing
Level: Easy
17.6 If all funds in a project are expected to be blocked by government action in perpetuity, the value of the project is _______.
a) limited
b) unlimited
c) zero
d) difficult to determine
Ans: c
Section: Blocked funds
Level: Easy
17.7 __________ such as better quality, faster time to market, and higher customer satisfaction can have a significant impact on corporate cash flows.
a) Intangibles
b) Transfer prices
c) Economies of scale of