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FIN 370 Notes CH 1-4

FIN 370 Notes CH 1-4 - 01.28.08 MNC.the goal of a...

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01.28.08 MNC...the goal of a multinational is the same as any regular firm...maximize shareholder wealth.   Choosing projects who's NPV > 0. Financial mgrs throughout the MNC have a single goal of  maximizing the value of the entire MNC. When a corps shareholders differ from its mgrs a conflict  of interests can arise--the agency problem. Agency occurrences are usually higher for MNC  because  1) distant managers 2) differing cultures 3) sheer size of MNC 4) tendency to downplay short term effects CONFLICTS WITH MNC GOAL Subsidiary mngrs may be tempted to maximize values of their subsidiary instead of the parent  company...think NBC trying to make a profit at the expense of the Shinhardt Wig Company...that's  a no no IMPACT OF A CORP CONTROL Ways to reduce agency problems 1) stock options 2) hostile takeover threat 3) investor monitoring CONSTRAINTS INTERFERING WITH THE MNCS GOAL'S MNC managers  are confronted with various constraints 1) environmental 2) regulatory 3) ethical.  Firms with higher governance standards are usually higher. THEORIES OF INTL BUSINESS Why are firms motivated to expand their business internationally? 1) Theory of cooperative   advantage  -specialization by countries can increase productive efficiency. 2) Imperfect  markets   theory  - the markets for the various resources used in production are imperfect. 3) product cycle   theory  - as a firm matures it may recognize additional opportunities outside its home territory. INTL BUSINESS METHODS 1) Intl trade - exporting/importing 2) licensing - allows a firm to trade its tech or product in  exchange for fees. 3) Franchising - obligates a firm to provide a specialized sales or service  strategy , support assistance, possibly an initial investment, in exchange for periodic fees 4) Firms  may also penetrate foreign markets by engaging in a joint venture (joint ownership and operation)  with firms that reside in those markets. 5) Acquisitions of existing operations in foreign countries  allows firms to quickly gain control over foreign operations as well as share of the foreign market.  6) Firms can also penetrate foreign mkts by establishing new foreign subsidiaries . Many MNC use  a combination of methods to increase intl business. **In general, any method of conducting  business that requires a direct investment in foreign operations is referred to as a Direct Foreign   Investment (DFI) INTL OPPORTUNITIES Investment opportunities  - the marginal returns on MNC projects OPPORTUNITIES IN THE EU *The single European act of 1987 *the removal of the Berlin wall in 1989 *inception of the euro in 
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