St. Joseph’s College of Commerce M.I.B. 2013 III sem International Financial Management Question Paper PDF Download

1
ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)
END SEMESTER EXAMINATION – APRIL 2014
M.I.B. – III SEMESTER
INTERNATION FINANCIAL MANAGEMENT
Duration : 3 HOURS Max. Marks: 100
SECTION – A
I) Answer SEVEN questions from the following : (7x 5 = 35)
1. What is balance of payments?
2. What is cross border finance?
3. What are the techniques to appraise projects?
4. What are the various risks prevailing in international transactions?
5. Write a note on Capital budgeting?
6. Why does disequilibrium in BOP exist?
7. How is international financial management different from domestic financial
management?
8. What are the factors effecting exchange rates?
9. What is the difference between risk and exposure with respect to foreign
exchange management?
10. What is translation exposure?
SECTION – B
II) Answer any THREE questions from the following (3×15 = 45)
11. Why do companies enter global markets?
12. Critically analyse the statement” NPV is a simple method of assessing projects”
13. Explain the factors that discourage FDI in India?
14. What are forward rate agreements?
15. What are the risks faced by multinational companies?
2
SECTION – C
III) Compulsory question. (20 marks)
16.
Big Oil is wondering whether to drill for oil in Westchester Country. The
prospectus is as follows:
Depth
of
Total Cost
Millions of Cumulative
PV of Oil (If found)
Millions of
Well
Feet Dollars
Probability
of Dollars
Finding Oil
2000 4 0.5 10
4000 5 0.6 9
6000 6 0.7 8
Draw a decision tree showing the successive drilling decisions to be made by Big
Oil. How deep should it be prepared to drill?

St. Joseph’s College of Commerce M.Com. 2013 III Sem International Financial Management Question Paper PDF Download

1
ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)
END SEMESTER EXAMINATION – OCTOBER 2013
M.COM – III SEMESTER
INTERNATIONAL FINANCIAL MANAGEMENT
Duration: 3 hours Max. Marks: 100
SECTION- A
I) Answer any SEVEN questions. (7×5=35)
1. What are the most common strategies used to reduce exposure to a host
government takeover?
2. Depict the registration process of FIIs in India diagrammatically.
3. Show the process of remitting subsidiary earnings to parent
diagrammatically and explain briefly.
4. What are the various methods to conduct international business?
5. Why is a weak home currency not a perfect solution to correct a BOT
deficit?
6. A company exports highly advanced phone system components to its
subsidiary shops on islands in the Caribbean. The components are
purchased by consumers to improve their phone systems. These
components are not produced in other countries. Explain how political
risk factors could adversely affect the profitability of the company.
7. What are the factors influencing Working Capital requirements?
8. Why do firms pursue international business?
9. What are the various factors affecting International Trade Flows?
10. If the exchange rate at the end of 2007-2008 is INR43.91/USD and if the
rate of inflation in India and USA during 2008-2009 is respectively 7%
and 4%. Find the exchange rate at the end of 2008-2009. Which exchange
rate theory does this follow?
SECTION -B
II) Answer any THREE questions. (3×15=45)
11. Distinguish between Risk & Exposure. What are the different types of
Foreign Exchange Exposures & how are they managed?
12. Should Multinational Capital Budgeting be conducted from the viewpoint
of the subsidiary or the parent? What are the financial and political risk
factors in country risk?
2
13. Write a note for receiving FDI by an Indian company. Highlight the
sectors where FDI is not allowed in India. Also give a note on the financial
instruments available for FII investment and their consideration for
application.
14. Sun Pharma Ltd. an Indian based foreign MNC is evaluating an overseas
investment proposal. Sun Pharma Ltd. exporter of pharmaceutical
products is considering building a plant in US. The plant will entail an
initial outlay of $20 M and it is expected to give the following cash flow
over its life of 4 years.
Year Cash Flow
(USD M)
1 30
2 40
3 50
4 60
The current spot exchange rate is INR 65/USD and risk free rate of
interest in India is 12% and in the US it is 7%. Sun Pharma requires a
rupee return of 15% on the above project.
Calculate NPV under both home currency approach and foreign currency
approach.
15. (a) Find out the Balance of Trade and balance of Current Account, if:
Inflow on account of services: $1000; outflow on account of services: $800;
outflow of dividend, royalty etc: $1100; inflow of dividend etc: $560;
export of goods: $10,000; import of goods: $12000; remittances: $1200;
short-term movement of funds ($200)
(b) How would a relatively high home inflation rate and an increase in a
country’s national income affect the home country’s current account,
other things being equal?
P.T.O………
3
SECTION -C
III) Case Study: (20 marks)
16. Threads Woven Corp. currently have no existing business in South Africa
but are considering establishing a subsidiary there. The following
information has been gathered to assess this project:
• The initial investment required is ZAR (South African Rand) 100 M.
Given the existing spot rate of $0.50 per ZAR, the initial investment in
US$ is $ 50M.
• The project will be terminated at the end of Year 3 when the subsidiary
will be sold.
• The fixed costs such as overhead expenses are estimated to be ZAR 12
M per year.
• The exchange rate of the ZAR is expected to be $0.52 at the end of year
1, $ 0.54 at the end of year 2, and $ 0.56 at the end of year 3.
• The South African government will impose an income tax of 30% on
income. In addition, it will impose a withholding tax of 10% on
earnings remitted by the subsidiary. The US government will allow a
tax credit on the remitted earnings and will not impose any additional
taxes.
• All cash flows received by the subsidiary are to be sent to the parent at
the end of each year. The subsidiary will use its working capital to
support ongoing operations.
• The price, demand and variable cost of the product in South Africa are
as follows:
Year Price Demand Variable Cost
1 ZAR 1000 40,000 units ZAR 60
2 ZAR 1022 50,000 units ZAR 70
3 ZAR 1060 60,000 units ZAR 80
• The plant & equipment are depreciated over 10 years using straight
line method. Since the plant & equipment are initially valued at ZAR
100M, the annual depreciation expense is ZAR 10 M.
• In three years, the subsidiary is to be sold. When it sells the subsidiary,
Threads Woven Corp. expects to receive ZAR 104 M after subtracting
capital gains taxes. Assume that this amount is not subject to a
withholding tax.
• Threads Woven Corp requires a 20% rate of return on the project.
Determine the NPV of this project. Should Threads Woven Corp.
accept this project?

St. Joseph’s College of Commerce M.Com. 2014 III Sem International Financial Management Question Paper PDF Download

 

  1. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)

End Semester Examinations – OCTOBER 2014

MIB –III semester

INTERNATIONAL FINANCIAL MANAGEMENT

Duration: 3 Hrs                                                                                          Max. Marks: 100

 

Section – A

  1. Answer any SEVEN  Each carries 5 marks.                  (7 x 5  = 35)

 

  1. What are the typical reasons why MNCs expand internationally?

 

  1. What method has McDonald’s used to conduct international business? How has it used this method to its advantage and mention the other methods to conduct international business.

 

  1. How would a relatively high home inflation rate and a weakening home currency affect the home country’s current account, other things being equal?

 

  1. What are the reasons for Balance of Payments disequilibrium?

 

  1. Why is country risk analysis important?

 

  1. Cliff top Co. plans to expand its successful business by establishing a subsidiary in Canada. However, it is concerned that after 2 years the Canadian government will either impose a special tax on any income sent back to the US parent or order the subsidiary to be sold at that time. The executives have estimated that either of these scenarios have a 15% chance of occurring. They have decided to add 4 percentage points to the project’s required rate of return to incorporate the country risk that they are concerned about in the capital budgeting analysis. Is there a better way to more precisely incorporate the country risk of concern here?

 

  1. Explain how the present value of the salvage value of an Indonesian subsidiary be affected (from US parent’s perspective) by (i) an increase in the risk of the foreign subsidiary and (ii) an expectation that Indonesia’s currency (rupiah) will depreciate against the dollar over time.

 

  1. In 2001, an outbreak of foot–and-mouth disease occurred in United Kingdom and eventually spread to several other European countries. This disease can spread by direct or indirect contact with infected animals. The US government imposed trade restrictions on some products produced in the United Kingdom for health reasons. Give your view on how this restriction affected the trade flows between the two countries?

 

  1. What are the techniques to optimize cash flow in multinational Cash Management?

 

  1. Differentiate between Direct Foreign Investment and Portfolio Investment.

 

Section – B

  1. Answer any THREE   Each carries 15 marks              (3 x 15   = 45)
  2. a) Among the agencies that facilitate international trade flows, what is the difference in the functions of IMF, World Bank, WTO and IFC?

 

  1. b) Explain how each of the following transactions will be classified and recorded in the debit and credit of the US Balance of Payments:

 

  • A Japanese insurance company purchases US Treasury Bonds and pays out of its bank account kept in New York City.
  • A US citizen consumes a meal at a restaurant in Paris and pays with her American Express Card.
  • An Indian immigrant living in Los Angeles sends a cheque drawn on his Los Angeles bank account as a gift to his parents living in Mumbai.
  • A US computer programmer is hired by a British company for consulting and gets paid from the US bank
  • Individuals in the US purchase CDs over the internet from a firm based in China                                                                                          (10+5)

 

  1. a) What strategies does an MNC use to reduce exposure to a host government takeover?

 

  1. b) Calculate the Balance on Capital a/c with the following information:

 

  • Government loans from abroad 20 M
  • Government loans to abroad 40 M
  • Direct investment abroad 68 M
  • FDI into the country 208 M
  • Foreign short-term loans investment in the country 60 M
  • Short-term loans and investment abroad 470 M
  • Private remittance abroad 85 M
  • Private remittance from abroad 211M (8+7)

 

  1. a) An American multinational corporation has subsidiaries whose cash positions for the month of September 2013 are given below:

Swiss subsidiary: Cash surplus of CHF 15 M

Canadian subsidiary: Cash deficit of CAD 25 M

UK subsidiary: Cash deficit of GBP 3 M

What are the cash requirements if:

  • Decentralized cash management is adopted?
  • Centralized cash management is adopted?

Exchange rates: CHF 1.48/USD, CAD: 1.58/USD, USD: 1.57/GBP

 

  1. b) Should capital budgeting for a MNC project be conducted from the viewpoint of the subsidiary that will administer the project or the parent that will most likely finance much of the project? Depict the process of remitting subsidiary earnings to the parent diagrammatically. (8+7)

 

  1. a) What are the factors influencing working capital requirements?

 

  1. b) Write a note on ADRs and GDRs.                                                               (8+7)

 

15) a) What is a lease contract? What are the various kinds of leases?

 

  1. b) What are the reasons for the cost of capital for MNCs differing from that for domestic firms?                                                                                                       (8+7)

 

Section – C

 

  • Compulsory Case study.                                                                           (1 x 20 = 20)

 

  1. Rolls and Skates, Inc is considering the development of a subsidiary in Singapore that would manufacture and sell roller skates locally. The management has asked various departments to supply relevant information for a capital budgeting analysis. The project would end in 4 years. An estimated 40 M Singapore dollars (SGD), which includes funds to support working capital, would be needed for the project. Given the existing spot rate of USD 0.40 per SGD, the USD amount of the parent’s initial investment is USD 16 M.

 

The estimated price & demand schedules during each of the next 4 years are shown below:

  Year 1 Year 2 Year 3 Year 4
Price / skate SGD 700 SGD 700 SGD 720 SGD 760
Demand  in Singapore 60,000 units 60,000 units 100,000 units 100,000 units

 

The variable costs (for materials, labour etc) per unit have been estimated and consolidated as shown below:

  Year 1 Year 2 Year 3 Year 4
Variable cost per skate SGD 400 SGD 400 SGD 500 SGD 520

The expense of leasing extra office space is SGD 2M per year. Other annual overhead expenses are expected to be SGD 2 M per year. The Singapore government will allow the company’s subsidiary to depreciate the cost of the plant and equipment at a maximum rate of SGD 4M per year, which is the rate the subsidiary will use.

 

The Singapore government will impose a 20% tax rate on income. In addition, it will impose a 10% withholding tax on any funds remitted by the subsidiary to the parent. The US government will allow tax credit on taxes paid in Singapore; therefore, earnings remitted to the US parent will not be taxed by the US government.

 

The subsidiary plans to send all net cash flows received, back to the parent firm at the end of each year. The Singapore government promises no restrictions on the cash flows to be sent back to the parent firm but imposes a 10% withholding tax on any funds sent to the parent, as mentioned earlier.

 

The Singapore government will pay the parent SGD 12 M to assume ownership of the subsidiary at the end of 4 years. Assume that there is no capital gains tax on the sale of the subsidiary. The spot exchange rate of SGD is USD 0.40. The company uses the spot rate as its best forecast of the exchange rate that will exist in future periods. Rolls and Skates, Inc requires a return of 15% on this project.

 

  • Determine the NPV of this project. Should the company accept this project?
  • In the above case, Rolls & Skates, Inc uses the SGD spot rate of USD 0.40 as a forecast for all future periods of concern. The company realizes that the exchange rate will typically change over time, but it does not know whether the SGD will strengthen or weaken in the future. Assume an optimistic scenario where the exchange rates become USD 0.44, USD 0.47, USD 0.51 and USD 0.55 per SGD.

Also assume a pessimistic scenario where the exchange rates become USD 0.37, USD 0.35, USD 0.30 and USD 0.27 per SGD.

Which of the two will be favourable to the parent company and why? Explain with the help of numerical.

 

 

 

St. Joseph’s College of Commerce M.Com. 2014 III Sem International Financial Management Question Paper PDF Download

  1. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)

End Semester Examinations – OCTOBER 2014

m.com -III semester

INTERNATIONAL FINANCIAL MANAGEMENT

Duration: 3 Hrs                                                                                           Max. Marks: 100

Section – A

  1. Answer any SEVEN Each carries 5 marks.                        (7 x 5  = 35)

 

  1. Write a note on the various International business methods.
  2. Explain the components of International Financial system.
  3. Briefly explain the agencies that facilitate international flow.
  4. Explain the factors affecting international trade.
  5. Write a note on the exchange rate system in India.
  6. Mention the subjective factors to be considered while assessing a particular country for investment in Country Risk analysis.
  7. What are the issues involved in foreign investment analysis?
  8. What are the considerations an MNC has to keep in mind while investing in other country with special reference to tax?
  9. What are the various international project evaluation techniques considered for international investment.
  10. Calculate the Weighted average cost of capital when the capital structure shows:

(a)  existing debt of $5.0 million at 10% for 6 years (tax rate is 30%)

(b)  new debt of $ 3.0 million at 8 % for 10 years with a floating cost of $ 2,00,000

(c ) existing equity shares of $ 7.0 million ($ 15 per share), EPS $ 4, growth rate of 5% and dividend pay-out ratio of 50% and

(d) proposed equity share(1,00,000 shares) to be sold at $15 with $ 2,00,000 floatation cost.

 

Section – B

 

  1. Answer any THREE   Each carries 15 marks.                   (3 x 15   = 45)

11) What are the components of Balance of Payments? What is meant by equilibrium and disequilibrium in balance of payment? What are the measures taken to overcome disequilibrium in the Balance of payment?

 

12) An Indian importer imports goods worth $62,500. He expects an appreciation of pound. So he goes for hedging the risk. The currency market has the following data:

(a) spot rate on the date of the contract Rs. 68,00/£

(b) three month forward rate Rs. 68.50/£

(c) Strike rate in a three-month call option Rs. 68.60/£ with 5% premium

(d) Strike rate in a three-month put option Rs. 68.80/£ with 5% premium

( e) spot rate on the date of payment/maturity Rs. 68.90/£

 

Will he go for a hedge? If so, which of the options he will select?

 

13)  Briefly explain the international working capital management policy from the point of view of a firm as well as units and also elucidate on the objectives aimed to be achieved through Working capital management for an international firm.

 

14) Explain the ways in which the inventory, receivables and cash in managed internationally by the parent as well as the subsidiary

15) Elucidate on the risks involved in international project and the ways to mitigate the same.

Section – C

  • Compulsory Case study.                                                                           (1 x 20 = 20)

 

  1. Sparton a US company is considering pre-development of a subsidiary  company in Singapore, that will manufacture and sell tennis rackets locally. Spartan management has obtained the following relevant information.

(i) Initial Investment :-

An estimated 20 million Singapore $ which includes funds to support working capital would be needed for the project. This is given at the existing spot rate of 0.50 USD/Singapore $

(ii)  Life cycle:-

The projects life cycle is expected to end in 4 years. The host government has promised to purchase the plant from the parent after 4 years

(iii) Price and Demand:-

Year Price/unit Demand (units)
1 Singapore $350 60000
2 Singapore $350 60000
3 Singapore $360 100000
4 Singapore $380 100000

 

 

 

 

 

 

 

The estimated price and demand schedule during each of the next 4 years is as follows:

 

(iv) Cost: – the variable cost for material,  labour etc.,  per unit are as follows;

Year Variable

Cost per unit

1 Singapore $ 200
2 Singapore $200
3 Singapore $ 250
4 Singapore $ 260

The expenses of leasing the extra office space is 1 million Singapore $ per year. Other annual overhead expenses are expected to be Singapore $ 1 million per year

(v)  The exchange rate:

The rate of exchange is USD 0.5 per Singapore $. Spartan uses the spot rate as its best forecast of exchange rate that will exist in future period.

(vi)  The host country taxes on income earned by the subsidiary:-

The Singapore government will allow Spartan to establish the subsidiary and will impose a 20% tax rate on income. In addition, it will impose a 10% withholding tax on any funds remitted by the subsidiary to the parent.

(vii) The US government taxes on income earned by Spartan subsidiary; the US government will allow a tax credit on taxes paid in Singapore.

(viii) Spartan subsidiary plans to send all the net cash flows received back to the parent at the end of the year

(ix) Depreciation on plant and equipment is at a maximum of 2 million Singapore $ per year.

(x) Salvage value of 12 million Singapore $will be paid by the Singapore government at the end of 4 years.

(xi) Discounting rate is 15%.

Calculate NPV.

 

 

 

 

 

St. Joseph’s College of Commerce M.I.B. 2015 III Sem International Financial Management Question Paper PDF Download

ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)
END SEMESTER EXAMINATION –SEPT/OCT.2015
MIB – III SEMESTER
P211301: INTERNATIONAL FINANCIAL MANAGEMENT
Duration: 3 Hours                                                                                              Max. Marks: 100
SECTION – A
I. Answer any SEVEN questions.  Each carries 5 marks.                                    (7×5=35)
  1.
  • If the euro’s spot rate is $1.03 and its one year forward rate has a forward premium of 2%, the one year forward rate is?
  • If the euro’s one year forward rate is quoted at $1.00and the euro’s spot rate is quoted at $1.03 the euro’s forward premium is?

 

  2. What are the forms of exchange rate fluctuations?
  3. Explain the methods used to adjust the evaluation for risk with examples.
  4. Explain the process of remitting subsidiary earnings to the parent with the help of a diagram.
  5. What are the key factors that are important for firm’s decision to invest overseas?
  6. Suppose Boeing imports Jet engines produced by Rolls Royce for $30 million and that Boeing makes payment by transferring the funds to a New York bank account kept by Rolls Royce.

 

Suppose that Ford acquires Jaguar, a British car manufacturer for &750 million, and that Jaguar deposits the money in Barclays Bank in London which in turn uses the sum to purchase US treasury notes.

 

Give debit and credit entries as appearing in BOP.

  7. Explain

  • The theory of comparative advantage
  • The imperfect market theory
  • The product life cycle theory
  8. What is netting.  Explain its use in an international scenario.
  9. What are tax havens?
  10. Briefly explain the components of balance of payments.
SECTION – B
II. Answer any THREE questions.  Each carries 15 marks.                                (3×15=45)
  11. What is multinational capital budgeting.  Explain the factors to consider in multinational capital budgeting.
  12. You are just one week young in your job as a treasury executive in al leading laptop trader/supplier in India.  Earlier your company was sourcing assembled laptops from China, but with the incentives provided in the Budget of 2015 by the Finance Minister of India, your company is planning to enter assembly /manufacturing market in India.

 

 

Now your company is planning to source components and sub assembles from Taiwanese firms.  This will involve a lot of foreign exchange trading and contracts.

Since you are from a leading business school in India, you CFO has asked you to make a presentation to the top management on various possibilities relating to forex market in India.

 

What is all that you would like to tell the top management so as to establish your credibility?

 

  13. What is letter of credit?  Who are the parties involved in issuing LOC.  Explain the utilization and issuing LOC with diagrams.

 

  14.
  • What is country risk analysis?  Explain the methods in incorporating country risk in capital budgeting?
  • What are the types of country risk assessment

 

  15. What is International cash management?  Explain centralized cash management and the flow of cash for an MNC with the help of a diagram.  What are the techniques of optimizing cash flow?
SECTION – C
III. Case Study                                                                                                              (1×20=20)
  16. You are back to you office after a long holiday in Caribbean islands with your family members.  This was a gift for your outstanding performance last year.  Your predictions about exchange rate and interest rate were bang on target.  This forecast helped your company to save over a hundred million dollars.  Your CEO wants you to replicate this performance this fiscal.

 

Business situation

Your company is the largest cloth manufacturer in the world in your segment.  You are planning forays into the branded garments segment.  You are planning forays into the branded garments segment.  Since you want to keep transportation costs at their minimum you are planning to set up manufacturing bases in all major markets.  Thins global – Act local is your mantra, as well.

 

Plant and Machinery

It is expected that your three plants will be set up in Mexico, Brazil and Australia.  These plants will have about the same capacity and are likely to cost about USD ten million each.  The construction period could be anywhere from two to five years, depending on the support received from local government officials.  This investment could easily make your company the second largest manufacturer of cloth in that segment.

 

Ownership

Your company has a choice of either setting up a 100% subsidiary or a joint venture with one of the local companies

 

 

 

Local issues

There are local political parties who can make life difficult in Brazil.  However in Mexico and Australia  you are likely to sail smoothly

 

Cash flow

There are no credible estimates for cash flow because the local markets are an uncharted territory for you.  All you know is : you goods will be priced in local currency

 

Capital

On this front,  you have multiple choices

  • Raising domestic equity in rupee terms
  • Mix of debt and equity in rupee terms
  • USD denominated bond issue
  • Raising local currency debt

 

Question:

Should your company make this investment? If yes, then which will be the best route to

  • Maximization of profits
  • Minimizing risk
  • Finding the optimal mix of profits and risk

What all information do you need to arrive at these answers? How will you structure your analysis?

 

 

 

 

St. Joseph’s College of Commerce 2015 International Financial Management Question Paper PDF Download

ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)
END SEMESTER EXAMINATION – SEPT/OCT. 2015
M.COM -III SEMESTER
P111306: INTERNATIONAL FINANCIAL MANAGEMENT
Duration: 3 Hours                                                                                              Max. Marks: 100
SECTION – A
I. Answer any SEVEN questions.  Each carries 5 marks.                                    (7×5=35)
  1. Firms have different modes to conduct international business. Elucidate
  2. Explain the four major facets that distinguishes international financial management with domestic financial management
  3. Balance of Payment of any country is affected by many factors. Elaborate
  4. Disequilibrium can be corrected with different measures taken by the economy. Suggest in detail what measures can be adopted.
  5. a)         An importer expects appreciation of US $ while importing goods for

10,000 US $. So he goes for buying 10,000 US $ one month forward coinciding the time of payment for the import. The spot rate and the forward rates are respectively Rs. 60 and Rs.60.50 per US $. Surprisingly the future spot rate on maturity is only Rs.60.30/$. Will the forward deal be beneficial?

 

b)        If the rate of exchange is:

US $ 2.0000-2.0100/£ in New York

US $ 1.9800-1.9810/£ in London

Explain how the arbitrageurs will gain

  6. Critically explain the techniques of assessing country risk.
  7. What techniques are adopted to manage transaction/operating exposure?
  8. The Indian Government is promoting FDI. In this context explain some of the incentives provided in India and also the barriers that the multinational companies face to invest in India
  9. Determine balance of current a/c, capital a/c and  net overall balance of

Payment from the following information of India during 2014-15.( in $ billion)

Oil imported 240

Exported goods 200

Financial short term transaction outflow 6

Investment in Iran 22

Investment by US in India 36

Holdings with banks in foreign countries 8

Net services inflow 8

Unilateral transfer inflow 4

Investment income outflow 1

Non movement of gold outflow 1

Portfolio investment abroad 27

Portfolio investment in India 9

Loans repayment to other countries 12

Loans repayment by other countries 36

Errors and omissions (2)

 

  10. How would you reduce exposure to host government takeovers?
SECTION – B
II. Answer any THREE questions.  Each carries 15 marks.                                (3×15=45)
  11. Explain various risks that influence international financial markets.
  12. ‘Many agencies facilitate international flow of funds’. Explain.
  13. Leasing is an important technique to finance projects. Elucidate.
  14. ‘International Cash management means optimization of cash flows and investment of excess cash’ in this context explain the various techniques and common complications in optimizing cash flows.
  15. How would you incorporate international tax laws in multinational capital budgeting.
SECTION – C
III. Case Study                                                                                                              (1×20=20)
  16.
  1. The cost of the subsidiary project is US $ 20 million. It is financed through different modes of funds. A sum of $ 3 million is drawn out of retained earnings and another sum of $ 2 million is drawn out of the blocked funds. The subsidiary borrows $ 2 million from the host country market. The remaining $ 1 million is in the form of free land and building supplied by the host country government. The rest is raised by parent unit. Find out the amount of initial investment from the view point of parent company.

 

  1. Calculate operating cash flow of parent unit from the following:

Sales in domestic market -US $ 14 million

Export -US $ 4 million

Replacement of parents export- US $ 2 million

Parents export of components to subsidiary- US $ 3 million

Royalty payment by subsidiary- US $ 0.5 million

Dividend flow to the parent- US $ 0.5 million

 

c.       Find the BE salvage value if:

Initial investment =$ 30 million

The net cash inflow during the first and the second year respectively = $ 20 million and $ 15 million

Discount rate =10%

 

d.     A project of the foreign subsidiary has a beta of 1.10, the risk-free return of 15% and the required return on the market being estimated at

20 %. Find out the project’s  cost of capital.

 

e.      A firm with an overall debt-equity ratio of 1:2, an after tax cost of debt at 7 % and cost of equity capital at 15% is taking up a project abroad. The debt-equity norm of the foreign project is not different but the systematic risk pulls down the cost of equity to 12 %. Again, there is no; change in the expected after-tax cost of debt. Calculate the weighted average cost of capital.

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