Question

True or False

1. ____ Variation and complexity in global tax systems create opportunities for many MNC’s to increase corporate value through effective tax planning.

2. ____ In the post-acquisition period, the cash flow risk refers to the uncertainty about the value of acquired assets or liabilities in acquirer’s local currency due to the movement of FX rates.

3. ____ Acquisitions of companies in emerging markets can be riskier because of difficulty (or expense) in conducting adequate due diligence.

4. ____ The reduction of US corporate income tax to 21% from 35% has not affected flows of international capital investments.

5. ____ Capital budgeting analysis for foreign projects is exactly the same as the analysis of domestic projects.

6. ____ Corporate Governance is integrally connected with Financial Risk Management.

7. ____ The financial due diligence undertook by various parties involved in the M&A transactions can eliminate the possibility of potential flaws in the target’s financial statements.

8. ____ Segmentation of Global Financial Markets and disequilibria in pricing of currency forwards always increase the cost of capital for MNC’s.

9. ____ Managerial hubris in M&A refers to managers attempt to increase their power, influence and the resources under their control by undertaking acquisitions that are not at the interest of their shareholders.

10. ____ Multinational corporations should attempt to forecast currency exchange rates in making currency hedging decisions

Answer 1

Answer 1 True

MNC usually take the advantage of variation in global taxing system by using the transfer pricing, selling goods through those countries where the tax rate are lower.

Answer 2 True

The acquisition result in an increase in total risk including cash risk, since the acquirer risk exposure increases as the balance sheet and assets and liabilities are recorded in their home currency which may change.

Answer 3 True

The acquisition of any co require adequate due diligence. However in the emerging markets it is difficult to perform due diligence as not enough information is available.

Answer 4 False

If the corproate tax rate decreases, more foreign companies would be interested to invest and operate in the country. Thus by decreasing the tax rate from 35 to 24% would be expected to increase the flow of international capital investment