Chapter 1: Managing Finance in Foreign Subsidiaries: An Overview 3 This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher. Answers to End of Chapter Questions1. Motives of an MNC. Describe constraints that interfere with an MNC’s objective. ANSWER: The constraints faced by financial managers attempting to maximize shareholder wealth are: a. Environmentalconstraints— countries imposeenvironmentalregulationssuchas building codes and pollution controls, which increase costs of production. b.Regulatoryconstraints— host governmentscanimposetaxes, restrictionson earnings remittances, and restrictions on currency convertibility, which may reduce cash flows to be received by the parent. c. Ethical constraints—U. S.-based MNCs may be at a competitive disadvantage if they follow a worldwide code of ethics, because other firms may use tactics that are allowed in some foreign countries but considered illegal by U. S. standards. 2. International Opportunities. a. How does access to international opportunities affect the size of corporations? ANSWER: Additional opportunities will often cause a firm to grow more than if it did not have access to such opportunities. Thus, a firm that considers international opportunities has greater potential for growth.b. Describe a scenario in which the size of a corporation is not affected by access to international
4 International Corporate Finance This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.
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