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Consider the following equation: S × Consider the following equation: S × = The term S in this equation is A) the forward exchange rate. B) the amount of foreign currency. C) the future spot exchange rate. D) the current spot exchange rate. = Consider the following equation: S × = The term S in this equation is A) the forward exchange rate. B) the amount of foreign currency. C) the future spot exchange rate. D) the current spot exchange rate. The term S in this equation is


A) the forward exchange rate.
B) the amount of foreign currency.
C) the future spot exchange rate.
D) the current spot exchange rate.

E) B) and D)
F) C) and D)

Correct Answer

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Use the following information to answer the question(s) below. Hammond Motors is considering an investment in the euro area. The expected free cash flows, in Euros, are uncorrelated with the spot exchange rate and are as follows: Use the following information to answer the question(s) below. Hammond Motors is considering an investment in the euro area. The expected free cash flows, in Euros, are uncorrelated with the spot exchange rate and are as follows: The new project, which Hammond is considering, has similar dollar risk to Hammond's other projects. Hammond knows that its overall dollar WACC is 10%, so it feels comfortable using this WACC for the project. The risk-free interest rate on dollars is 4% and the risk-free interest rate on Euros is 6%. Hammond is willing to assume that capital markets in the United States and the Euro area are internationally integrated. -The NPV of this project in Euros is closest to: A) €54 million B) €57 million C) €62 million D) €65 million The new project, which Hammond is considering, has similar dollar risk to Hammond's other projects. Hammond knows that its overall dollar WACC is 10%, so it feels comfortable using this WACC for the project. The risk-free interest rate on dollars is 4% and the risk-free interest rate on Euros is 6%. Hammond is willing to assume that capital markets in the United States and the Euro area are internationally integrated. -The NPV of this project in Euros is closest to:


A) €54 million
B) €57 million
C) €62 million
D) €65 million

E) A) and B)
F) A) and C)

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Use the information for the question(s) below. KT Enterprises, a U.S. import-export trading, is considering its international tax situation. Currently KT is U.S. tax rate is 35%. KT has significant operations in both Japan and Ireland. In Japan the current exchange rate is ¥118.4/$ and earnings in Japan are taxed at 41%. In Ireland the current exchange rate is $1.27/€ and earnings in Ireland are taxed at 12.5%. KT's profits, which are fully and immediately repatriated, and foreign taxes paid for the current year are shown here (in millions) : Use the information for the question(s) below. KT Enterprises, a U.S. import-export trading, is considering its international tax situation. Currently KT is U.S. tax rate is 35%. KT has significant operations in both Japan and Ireland. In Japan the current exchange rate is ¥118.4/$ and earnings in Japan are taxed at 41%. In Ireland the current exchange rate is $1.27/€ and earnings in Ireland are taxed at 12.5%. KT's profits, which are fully and immediately repatriated, and foreign taxes paid for the current year are shown here (in millions) : -The amount of the taxes paid in dollars for the Irish operations is closest to: A) $20.5 million B) $5.1 million C) $29.5 million D) $50.0 million -The amount of the taxes paid in dollars for the Irish operations is closest to:


A) $20.5 million
B) $5.1 million
C) $29.5 million
D) $50.0 million

E) A) and B)
F) C) and D)

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Which of the following statements is false?


A) When the foreign tax rate is less than the U.S. tax rate, deferral can provide significant benefits.
B) The U.S. tax liability is not incurred until the profits are brought back home if the foreign operation is set up as a foreign branch rather than as a separately incorporated subsidiary.
C) If a company chooses not to repatriate £12.5 million in pre-tax earnings, for example, it effectively reinvests those earnings abroad and defers its U.S. tax liability.
D) When the foreign tax rates exceed the U.S. tax rates, there are no benefits to deferral because in such a case there is no additional U.S. tax liability.

E) A) and B)
F) None of the above

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Which of the following statements is false?


A) If the U.S. tax rate exceeds the combined tax rate on all foreign income, it is valid to assume that the firm pays the same tax rate on all income no matter where it is earned.
B) Firms can lower their taxes by pooling multiple foreign projects and accelerating the repatriation of earnings.
C) Under U.S. tax law, multinational corporations may use any excess tax credits generated in high-tax foreign countries to offset their net U.S. tax liabilities on earnings in low-tax foreign countries.
D) If the foreign tax rate exceeds the U.S. tax rate, because the U.S. tax credit exceeds the amount of U.S. taxes owed, no tax is owed in the United States.

E) None of the above
F) A) and B)

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B

The dollar cost of debt for John Galt Industries is 8.0%.The firm faces a tax rate of 40% on all income,no matter where it is earned.Galt needs to know its Yen cost of debt.The risk-free interest rates on dollars and yen are r% = 6% and r¥ = 2%,respectively.Galt is willing to assume that capital markets are internationally integrated and that its free cash flows are uncorrelated with the yen-dollar spot rate.Galt's after-tax cost of debt in yen is closest to:


A) 0.9%
B) 2.0%
C) 3.9%
D) 4.8%

E) A) and C)
F) B) and D)

Correct Answer

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Use the information for the question(s) below. KT Enterprises, a U.S. import-export trading, is considering its international tax situation. Currently KT is U.S. tax rate is 35%. KT has significant operations in both Japan and Ireland. In Japan the current exchange rate is ¥118.4/$ and earnings in Japan are taxed at 41%. In Ireland the current exchange rate is $1.27/€ and earnings in Ireland are taxed at 12.5%. KT's profits, which are fully and immediately repatriated, and foreign taxes paid for the current year are shown here (in millions) : Use the information for the question(s) below. KT Enterprises, a U.S. import-export trading, is considering its international tax situation. Currently KT is U.S. tax rate is 35%. KT has significant operations in both Japan and Ireland. In Japan the current exchange rate is ¥118.4/$ and earnings in Japan are taxed at 41%. In Ireland the current exchange rate is $1.27/€ and earnings in Ireland are taxed at 12.5%. KT's profits, which are fully and immediately repatriated, and foreign taxes paid for the current year are shown here (in millions) : -The amount of the taxes paid in dollars for the Japanese operations is closest to: A) $29.5 million B) $5.1 million C) $50.0 million D) $20.5 million -The amount of the taxes paid in dollars for the Japanese operations is closest to:


A) $29.5 million
B) $5.1 million
C) $50.0 million
D) $20.5 million

E) A) and B)
F) A) and C)

Correct Answer

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Use the following information to answer the question(s) below. Rearden Metal, a U.S. manufacturer, has made a purchase of from d'Anconia Copper and is expecting a cash outflow of 2 million ARS (Argentine Pesos) in six months. The currency spot rate is $0.2500/ARS and the six-month forward rate is F6months = $0.2470/ARS. The appropriate annual discount rate for the Argentine Peso is 6.5% and the annual discount rate for the U.S. dollar is 4%. -What conclusions can you make about the degree of international integration between the U.S.and Argentine markets?


A) The markets are integrated since the PV of investing dollars today and converting them with a forward contract is less than converting into Pesos today and investing those Pesos for six months.
B) The markets are integrated since the PV of investing dollars today and converting them with a forward contract is greater than converting into Pesos today and investing those Pesos for six months.
C) The markets are integrated since the PV of investing dollars today and converting them with a forward contract is approximately equal to converting into Pesos today and investing those Pesos for six months.
D) The markets are not integrated since the PV of investing dollars today and converting them with a forward contract is greater than converting into Pesos today and investing those Pesos for six months.

E) B) and D)
F) All of the above

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Which of the following statements is false?


A) Differential access to national capital markets is common enough that it provides the best explanation for the existence of currency swaps, which are like the interest rate swap contracts, but with the holder receiving coupons in one currency and paying coupons denominated in a different currency.
B) Currency swaps generally also have final face value payments, also in different currencies.
C) Using a currency swap, a firm can borrow in the market where it has the best access to capital, and then "swap" the coupon and principal payments to whichever currency it would prefer to make payments in.
D) With differential access to national markets, to maximize shareholder value, the firm should raise capital in the foreign market; the method of valuing the foreign project as if it were a domestic project would then provide the correct NPV.

E) A) and D)
F) A) and C)

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Use the following information to answer the question(s) below. Incorporated Tool, a U.S. firm, is considering its international tax situation. The corporate tax rate in the U.S. is currently 39%. Incorporated Tool has major operations in Ireland, where the tax rate is 12.5%, Japan where the tax rate is 40.7%, and Mexico, where the tax rate is 30.0%. Incorporated Tool's profits, which are fully and immediately repatriated, and foreign taxes paid for the current year are as follows: Use the following information to answer the question(s) below. Incorporated Tool, a U.S. firm, is considering its international tax situation. The corporate tax rate in the U.S. is currently 39%. Incorporated Tool has major operations in Ireland, where the tax rate is 12.5%, Japan where the tax rate is 40.7%, and Mexico, where the tax rate is 30.0%. Incorporated Tool's profits, which are fully and immediately repatriated, and foreign taxes paid for the current year are as follows: -Assuming that the Irish and Japanese subsidiaries did not exist,the U.S.tax liability on the Mexican subsidiary would be closest to: A) $0 B) $9 million C) $39 million D) $106 million -Assuming that the Irish and Japanese subsidiaries did not exist,the U.S.tax liability on the Mexican subsidiary would be closest to:


A) $0
B) $9 million
C) $39 million
D) $106 million

E) C) and D)
F) A) and B)

Correct Answer

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B

Consider the following equation: S × Consider the following equation: S × = The term F in this equation is A) the future spot exchange rate. B) the current spot exchange rate. C) the amount of foreign currency. D) the forward exchange rate. = Consider the following equation: S × = The term F in this equation is A) the future spot exchange rate. B) the current spot exchange rate. C) the amount of foreign currency. D) the forward exchange rate. The term F in this equation is


A) the future spot exchange rate.
B) the current spot exchange rate.
C) the amount of foreign currency.
D) the forward exchange rate.

E) B) and C)
F) A) and D)

Correct Answer

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Which of the following statements is false?


A) In some countries, especially in the developing world, all investors do not have equal access to financial securities.
B) Firms may face differential access to markets if there is any kind of asymmetry with respect to information about them.
C) In some cases, a country's risk-free securities are internationally integrated but markets for a specific firm's securities are not.
D) When countries' capital markets are not integrated we call them disintegrated capital markets.

E) B) and C)
F) A) and B)

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Luther Industries,a U.S.firm.has a subsidiary in the United Kingdom.This year,the subsidiary reported and repatriated earnings before interest and taxes (EBIT)of £45 million.The current exchange rate is $1.86/£.The tax rate in the U.K.for this activity is 28%.Under U.S.tax codes,Luther is facing a 35% corporate tax rate on their earnings.What is Luther's U.S.tax liability on its U.K.subsidiary?

Correct Answer

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When the foreign tax rate is below the U...

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How do we make adjustments when a project has inputs and outputs in different currencies?

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Whenever a project has cash fl...

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Use the following information to answer the question(s) below. Hammond Motors is considering an investment in the euro area. The expected free cash flows, in Euros, are uncorrelated with the spot exchange rate and are as follows: Use the following information to answer the question(s) below. Hammond Motors is considering an investment in the euro area. The expected free cash flows, in Euros, are uncorrelated with the spot exchange rate and are as follows: The new project, which Hammond is considering, has similar dollar risk to Hammond's other projects. Hammond knows that its overall dollar WACC is 10%, so it feels comfortable using this WACC for the project. The risk-free interest rate on dollars is 4% and the risk-free interest rate on Euros is 6%. Hammond is willing to assume that capital markets in the United States and the Euro area are internationally integrated. -Hammond's Euro WACC is closest to: A) 7.9% B) 8.7% C) 10.2% D) 12.1% The new project, which Hammond is considering, has similar dollar risk to Hammond's other projects. Hammond knows that its overall dollar WACC is 10%, so it feels comfortable using this WACC for the project. The risk-free interest rate on dollars is 4% and the risk-free interest rate on Euros is 6%. Hammond is willing to assume that capital markets in the United States and the Euro area are internationally integrated. -Hammond's Euro WACC is closest to:


A) 7.9%
B) 8.7%
C) 10.2%
D) 12.1%

E) None of the above
F) A) and D)

Correct Answer

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Use the information for the question(s) below. KT Enterprises, a U.S. import-export trading, is considering its international tax situation. Currently KT is U.S. tax rate is 35%. KT has significant operations in both Japan and Ireland. In Japan the current exchange rate is ¥118.4/$ and earnings in Japan are taxed at 41%. In Ireland the current exchange rate is $1.27/€ and earnings in Ireland are taxed at 12.5%. KT's profits, which are fully and immediately repatriated, and foreign taxes paid for the current year are shown here (in millions) : Use the information for the question(s) below. KT Enterprises, a U.S. import-export trading, is considering its international tax situation. Currently KT is U.S. tax rate is 35%. KT has significant operations in both Japan and Ireland. In Japan the current exchange rate is ¥118.4/$ and earnings in Japan are taxed at 41%. In Ireland the current exchange rate is $1.27/€ and earnings in Ireland are taxed at 12.5%. KT's profits, which are fully and immediately repatriated, and foreign taxes paid for the current year are shown here (in millions) : -After the Japanese taxes are paid,the amount of the earnings before interest and after taxes in dollars from the Japanese operations is closest to: A) $20.5 million B) $29.5 million C) $5.1 million D) $50.0 million -After the Japanese taxes are paid,the amount of the earnings before interest and after taxes in dollars from the Japanese operations is closest to:


A) $20.5 million
B) $29.5 million
C) $5.1 million
D) $50.0 million

E) B) and C)
F) B) and D)

Correct Answer

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B

Use the information for the question(s) below. KT Enterprises, a U.S. import-export trading, is considering its international tax situation. Currently KT is U.S. tax rate is 35%. KT has significant operations in both Japan and Ireland. In Japan the current exchange rate is ¥118.4/$ and earnings in Japan are taxed at 41%. In Ireland the current exchange rate is $1.27/€ and earnings in Ireland are taxed at 12.5%. KT's profits, which are fully and immediately repatriated, and foreign taxes paid for the current year are shown here (in millions) : Use the information for the question(s) below. KT Enterprises, a U.S. import-export trading, is considering its international tax situation. Currently KT is U.S. tax rate is 35%. KT has significant operations in both Japan and Ireland. In Japan the current exchange rate is ¥118.4/$ and earnings in Japan are taxed at 41%. In Ireland the current exchange rate is $1.27/€ and earnings in Ireland are taxed at 12.5%. KT's profits, which are fully and immediately repatriated, and foreign taxes paid for the current year are shown here (in millions) : -After the Irish taxes are paid,the amount of the earnings before interest and after taxes in dollars from the Ireland operations is closest to: A) $5.1 million B) $20.5 million C) $35.6 million D) $29.5 million -After the Irish taxes are paid,the amount of the earnings before interest and after taxes in dollars from the Ireland operations is closest to:


A) $5.1 million
B) $20.5 million
C) $35.6 million
D) $29.5 million

E) A) and B)
F) A) and C)

Correct Answer

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Which of the following statements is false?


A) U.S. tax policy requires U.S. corporations to pay taxes on their foreign income at the same rate as profits earned in the United States.
B) The home government gets an opportunity to tax the income from a foreign project to the domestic firm.
C) The general international arrangement prevailing with respect to taxation of corporate profits is that the home country gets the first opportunity to tax income.
D) The home government must establish a tax policy specifying its treatment of foreign income and foreign taxes paid on that income.

E) A) and B)
F) A) and C)

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Consider the following equation: S × Consider the following equation: S × = The term In this equation is A) the appropriate cost of capital from the standpoint of a U.S. investor. B) the risk-free rate for a foreign investor. C) the risk-free rate for a U.S. investor. D) the appropriate cost of capital from the standpoint of a foreign investor. = Consider the following equation: S × = The term In this equation is A) the appropriate cost of capital from the standpoint of a U.S. investor. B) the risk-free rate for a foreign investor. C) the risk-free rate for a U.S. investor. D) the appropriate cost of capital from the standpoint of a foreign investor. The term Consider the following equation: S × = The term In this equation is A) the appropriate cost of capital from the standpoint of a U.S. investor. B) the risk-free rate for a foreign investor. C) the risk-free rate for a U.S. investor. D) the appropriate cost of capital from the standpoint of a foreign investor. In this equation is


A) the appropriate cost of capital from the standpoint of a U.S. investor.
B) the risk-free rate for a foreign investor.
C) the risk-free rate for a U.S. investor.
D) the appropriate cost of capital from the standpoint of a foreign investor.

E) None of the above
F) A) and C)

Correct Answer

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Consider the following equation: Consider the following equation: = (1 + ) - 1 The term In this equation refers to A) the cost of capital in terms of dollars. B) the risk-free rate of interest on the yen. C) the risk-free rate of interest on the dollar. D) the cost of capital for the firm in terms of yen. = Consider the following equation: = (1 + ) - 1 The term In this equation refers to A) the cost of capital in terms of dollars. B) the risk-free rate of interest on the yen. C) the risk-free rate of interest on the dollar. D) the cost of capital for the firm in terms of yen. (1 + Consider the following equation: = (1 + ) - 1 The term In this equation refers to A) the cost of capital in terms of dollars. B) the risk-free rate of interest on the yen. C) the risk-free rate of interest on the dollar. D) the cost of capital for the firm in terms of yen. ) - 1 The term Consider the following equation: = (1 + ) - 1 The term In this equation refers to A) the cost of capital in terms of dollars. B) the risk-free rate of interest on the yen. C) the risk-free rate of interest on the dollar. D) the cost of capital for the firm in terms of yen. In this equation refers to


A) the cost of capital in terms of dollars.
B) the risk-free rate of interest on the yen.
C) the risk-free rate of interest on the dollar.
D) the cost of capital for the firm in terms of yen.

E) A) and D)
F) All of the above

Correct Answer

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