国际财务管理答案Chap018Word文件下载.docx

国际财务管理答案Chap018Word文件下载.docx

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SUGGESTEDANSWERSANDSOLUTIONSTOEND-OF-CHAPTER

QUESTIONSANDPROBLEMS

QUESTIONS

1.Whyiscapitalbudgetinganalysissoimportanttothefirm?

Answer:

Thefundamentalgoalofthefinancialmanageristomaximizeshareholderwealth.CapitalinvestmentswithpositiveNPVorAPVcontributetoshareholderwealth.Additionally,capitalinvestmentsgenerallyrepresentlargeexpendituresrelativetothevalueoftheentirefirm.Theseinvestmentsdeterminehowefficientlyandexpensivelythefirmwillproduceitsproduct.Consequently,capitalexpendituresdeterminethelong-runcompetitivepositionofthefirmintheproductmarketplace.

2.WhatistheintuitionbehindtheNPVcapitalbudgetingframework?

TheNPVframeworkisadiscountedcashflowtechnique.Themethodologycomparesthepresentvalueofallcashinflowsassociatedwiththeproposedprojectversusthepresentvalueofallprojectoutflows.Ifinflowsareenoughtocoveralloperatingcostsandfinancingcosts,theprojectaddswealthtoshareholders.

3.Discusswhatismeantbytheincrementalcashflowsofacapitalproject.

Incrementalcashflowsaredenotedbythechangeintotalfirmcashinflowsandcashoutflowsthatcanbetraceddirectlytotheprojectunderanalysis.

4.Discussthenatureoftheequationsequence,Equation18.2ato18.2f.

Theequationsequenceisapresentationofincrementalannualcashflowsassociatedwithac

apitalexpenditure.Equation18.2apresentsthemostdetailedexpressionforcalculatingthesecashflows;

itiscomposedofthreeterms.Equation18.2bshowsthatthesethreetermsare:

i）incrementalnetprofitassociatedwiththeproject;

ii）incrementaldepreciationallowance;

and,iii）incrementalafter-taxinterestexpenseassociatedwiththeborrowingcapacitycreatedbytheproject.Note,theincremental“netprofit”isnotaccountingprofitbutrathernetcashactuallyavailableforshareholders.Equation18.2ccancelsouttheafter-taxinteresttermin18.2a,yieldingasimplerformula.Equation18.2dshowsthatthefirsttermin18.2cisgenerallycalledafter-taxnetoperatingincome.Equation18.2eyieldsyetacomputationallysimplerformulabycombiningthedepreciationtermsof18.2c.Equation18.2fshowsthatthefirsttermin18.2eisgenerallyreferredtoasafter-taxoperatingcashflow.

5.WhatmakestheAPVcapitalbudgetingframeworkusefulforanalyzingforeigncapitalexpenditures?

TheAPVframeworkisavalue-additivitytechnique.Becauseinternationalprojectsfrequentlyhavecashflowsnotencounteredindomesticprojects,theAPVtechniqueeasilyallowstheanalysttoaddtermstothemodelthatrepresentthespecialcashflows.

6.Relatetheconceptoflostsalestothedefinitionofincrementalcashflow.

Whenanewcapitalprojectisundertakenitmaycompetewithanexistingproject（s）,causingtheoldproject（s）toexperiencealossinsalesrevenue.Fromanincrementalcashflowstandpoint,thenewproject’sincrementalrevenueisthetotalsalesrevenueassociatedwiththenewprojectminusthelostsalesrevenuefromtheoldproject（s）.

7.Whatproblemscanenterintothecapitalbudgetinganalysisifprojectdebtisevaluatedinsteadoftheborrowingcapacitycreatedbytheproject?

Ifprojectdebtisgreater（less）thantheborrowingcapacitycreatedbythecapitalproject,andtaxshieldsontheactualnewdebtareusedintheanalysis,theAPVwillbeoverstated（understated）makingtheprojectunjustlyappearmore（less）attractivethanitactuallyis.

8.WhatisthenatureofaconcessionaryloanandhowisithandledintheAPVmodel?

Aconcessionaryloanisaloanofferedbyagovernmentalbodyatbelowthenormalmarketrateofinterestasanenticementforafirmtomakeacapitalinvestmentthatwilleconomicallybenefitthelender.ThebenefittotheMNCisthedifferencebetweenthefacevalueoftheconcessionaryloanconvertedintothehomecurrencyandthepresentvalueofthesimilarlyconvertedconcessionaryloanpaymentsdiscountedattheMNC’snormaldomesticborrowingrate.Theloanpaymentswillyieldapresentvaluelessthanthefaceamountoftheconcessionaryloanwhentheyarediscountedatthehighernormalrate.ThisdifferencerepresentsasubsidythehostcountryiswillingtoextendtotheMNCiftheinvestmentismade.ThebenefittotheMNCoftheconcessionaryloanishandledintheAPVmodelviaaseparateterm.

9.WhatistheintuitionofdiscountingthevariouscashflowsintheAPVmodelatspecificdiscountrates?

TheAPVmodelisavalue-additivitytechniquewheretotalvalueisdeterminedbythesumofthepresentvaluesoftheindividualcashinflowsandoutflows.Eachcashflowwillnotnecessarilyhavethesameamountofriskassociatedwithit.Toaccountforriskdifferencesinthe