FIN 353 Week 8 Discussion “Cultural Dimensions” Please respond to the following:

Evaluate the importance of MNCs having a culturally diverse board of directors and work force. Provide one (1) example that depicts the main reasons why such factors are essential for international success.

From the e-Activity, assess the importance of understanding cultural differences for employees of companies operating internationally. Select three (3) of Geert Hofstede’s cultural dimensions, and, based on the chosen dimensions, compare the U.S. and Thailand. Interpret the results that the comparison yields.

Week 8 Homework Homework Problems for Chapters 15 and 16 Due Week 8 and worth 40 points

1. Chapter 15. Questions and Applications: 7 (page 489). 7. Valuing a Foreign Target Blore, Inc., a U.S.-based MNC, has screened several targets. Based on economic and political considerations, only one eligible target remains in Malaysia. Blore would like you to value this target and has provided you with the fol- lowing information: ■ Blore expects to keep the target for 3 years, at which time it expects to sell the firm for 300 mil- lion Malaysian ringgit (MYR) after any taxes. ■ Blore expects a strong Malaysian economy. The estimates for revenue for the next year are MYR200 million. Revenues are expected to increase by 8 percent in each of the following 2 years. ■ Cost of goods sold is expected to be 50 percent of revenue. ■ Selling and administrative expenses are expected to be MYR30 million in each of the next 3 years. ■ The Malaysian tax rate on the target’s earnings is expected to be 35 percent. ■ Depreciation expenses are expected to be MYR20 million per year for each of the next 3 years. ■ The target will need MYR7 million in cash each year to support existing operations. ■ The target’s stock price is currently MYR30 per share. The target has 9 million shares outstanding. ■ Any remaining cash flows will be remitted by the target to Blore, Inc. Blore uses the prevailing exchange rate of the Malaysian ringgit as the expected exchange rate for the next 3 years. This exchange rate is currently $.25. ■ Blore’s required rate of return on similar projects is 20 percent. a. Prepare a worksheet to estimate the value of the Malaysian target based on the information provided. b. Will Blore, Inc., be able to acquire the Malaysian target for a price lower than its valuation of the target?

2. Chapter 15. Questions and Applications: 12 (page 489). 12. Global Strategy Senser Co. established a subsid- iary in Russia 2 years ago. Under its original plans, Senser intended to operate the subsidiary for a total of 4 years. However, it would like to reassess the situation because exchange rate forecasts for the Russian ruble indicate that it may depreciate from its current level of $.033 to $.028 next year and to $.025 in the following year. Senser could sell the subsidiary today for 5 mil- lion rubles to a potential acquirer. If Senser continues to operate the subsidiary, it will generate cash flows of 3 million rubles next year and 4 million rubles in the following year. These cash flows would be remitted back to the parent in the United States. The required rate of return of the project is 16 percent. Should Senser continue operating the Russian subsidiary?

3. Chapter 16. Questions and Applications: 14 (page 514). 14. Country Risk Ratings Assauer, Inc., would like to assess the country risk of Glovanskia. Assauer has iden- tified various political and financial risk factors, as shown below. Assauer has assigned an overall rating of 80 per- cent to political risk factors and of 20 percent to financial risk factors. Assauer is not willing to consider Glovanskia for investment if the country risk rating is below 4.0. Should Assauer consider Glovanskia for investment? POLITICAL ASSIGNED ASSIGNED RISK FACTOR RATING WEIGHT Blockage of fund transfers 5 40% Bureaucracy 3 60%

FINANCIAL ASSIGNED ASSIGNED RISK FACTOR RATING WEIGHT Interest rate 1 10% Inflation 4 20% Exchange rate 5 30% Competition 4 20% Growth 5 20%

4. Chapter 16. Questions and Applications: 21 (page 515). opportunities to rebuild Iraq. However, in April 2004, some employees were kidnapped by local militant groups. How should an MNC account for this potential risk when it considers direct foreign investment (DFI) in any particular country? Should it avoid DFI in any country in which such an event could occur? If so, how would it screen the countries to determine which are acceptable? For whatever countries the MNC is willing to consider, should it adjust its feasibility analysis to account for the possibility of kidnapping? Should it attach a cost to reflect this possibility or increase the discount rate when estimating the net present value? Explain.

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