Professional Documents
Culture Documents
Financial Management
7th Edition
by
Jeff Madura
Florida Atlantic University
PowerPoint Presentation
Dividend
Remittance
Exporting & Financing Investing
& Importing & Financing
C1 - 4
Goal of the MNC
C1 - 5
Conflicts Against the MNC Goal
C1 - 6
Impact of Management Control
C1 - 7
Centralized Multinational Financial Management
for an MNC with two subsidiaries, A and B
Financing at A Financing at B
Financing at A Financing at B
C1 - 10
Impact of Management Control
C1 - 11
Impact of Corporate Control
C1 - 12
Constraints
Interfering with the MNCs Goal
As MNC managers attempt to maximize
their firms value, they may be confronted
with various constraints.
Environmental constraints.
Regulatory constraints.
Ethical constraints.
C1 - 13
Theories of International Business
C1 - 14
Theories of International Business
C1 - 15
The International Product Life Cycle
C1 - 17
International
Business Methods
Licensing allows a firm to provide its
technology in exchange for fees or some
other benefits.
Franchising obligates a firm to provide a
specialized sales or service strategy,
support assistance, and possibly an initial
investment in the franchise in exchange
for periodic fees.
C1 - 18
International
Business Methods
Firms may also penetrate foreign markets
by engaging in a joint venture (joint
ownership and operation) with firms that
reside in those markets.
Acquisitions of existing operations in
foreign countries allow firms to quickly
gain control over foreign operations as
well as a share of the foreign market.
C1 - 19
International
Business Methods
Firms can also penetrate foreign markets
by establishing new foreign subsidiaries.
In general, any method of conducting
business that requires a direct investment
in foreign operations is referred to as a
direct foreign investment (DFI).
The optimal international business
method may depend on the characteristics
of the MNC.
C1 - 20
Degree of International Business by MNCs
Foreign Sales as a % of Total Sales
Foreign Assets as a % of Total Assets
70% 66%
62% 58%
60% 50%
46% 47%
50% 40%
40% 33%
30% 26%
20% 12%
10%
0%
Campbell's Dow IBM Motorola Nike
Soup Chemical
C1 - 21
Online Application
C1 - 22
http://www.tradenet.gov
C1 - 23
http://www.business.gov/busadv/
index.cfm
C1 - 24
http://www.trade.gov
http://www.export.gov
C1 - 25
International Opportunities
Purely
Investment
Domestic
Opportunities MNC
Marginal Firm
Return on
Projects MNC
Purely
Marginal Domestic
Cost of Firm
Capital
Financing Appropriate
Opportunities Size for Purely Appropriate
Domestic Firm Size for MNC
X Y Asset Level
of Firm
C1 - 27
International Opportunities
Opportunities in Europe
The Single European Act of 1987.
The removal of the Berlin Wall in 1989.
The inception of the euro in 1999.
Opportunities in Latin America
The North American Free Trade Agreement
(NAFTA) of 1993.
The General Agreement on Tariffs and
Trade (GATT) accord.
C1 - 28
International Opportunities
Opportunities in Asia
The reduction of investment restrictions by
many Asian countries during the 1990s.
Chinas potential for growth.
The Asian economic crisis in 1997-1998.
C1 - 29
Online Application
C1 - 30
Exposure to International Risk
International business usually increases an
MNCs exposure to:
exchange rate movements
Exchange rate fluctuations affect cash
flows and foreign demand.
foreign economies
Economic conditions affect demand.
political risk
Political actions affect cash flows.
C1 - 31
Exposure to International Risk
U.S. Firms Cost of Obtaining 100,000
$165,000
$160,000
$155,000
$150,000
$145,000
$140,000
$135,000
$130,000
Jan Mar May Jul Sep Nov Jan Mar May
2000 2001
C1 - 32
Online Application
C1 - 34
Overview of an MNCs Cash Flows
Profile B: MNCs focused on International Trade and
International Arrangements
C1 - 35
Overview of an MNCs Cash Flows
Profile C: MNCs focused on International Trade, International
Arrangements, and Direct Foreign Investment
Payments for products
U.S. Customers
Payments for supplies
U.S. Businesses
C1 - 37
Valuation Model for an MNC
Domestic Model
n
E CF$, t
Value =
t =1 1 k t
C1 - 40
Valuation Model for an MNC
Impact of New International Opportunities
on an MNCs Value
Exposure to
Foreign Economies Exchange Rate Risk
m
n
E CFj , t E ER j , t
j 1
Value =
t =1 1 k t
Political Risk
C1 - 41
How Chapters Relate to Valuation
Exchange Rate
Behavior Exchange Rate
(Chapters 6-8) Risk Management
(Chapters 9-12)
Background
on Long-Term
International Investment and
Financial Risk and Value and
Financing Return of Stock Price
Markets Decisions
(Chapters MNC of MNC
(Chapters 13-18)
2-5)
Short-Term
Investment and
Financing
Decisions
(Chapters 19-21)
Chapter Review
C1 - 44
Chapter Review
International Opportunities
Investment Opportunities
Financing Opportunities
Opportunities in Europe
Opportunities in Latin America
Opportunities in Asia
C1 - 45
Chapter Review
C1 - 46
Chapter Review
C1 - 47