Payback period, credit policy, netting devices, MNE funds

1. A project has the following after-tax cash flows:

Year Cash Flow
0 -$1,000
1 400
2 300
3 400
4 200

What is this project's payback period?

a. 2.00 years

b. 2.25 years

c. 2.50 years

d. 2.75 years

2. Setting an appropriate credit policy is often more of a challenge in a foreign market than in a domestic setting for many reasons. These reasons include which of the following statements?

a. The credit period needs to be matched against the cash cycle of customers and the availability of local credit sources, but these factors are more difficult to assess in unfamiliar markets.

b. Particularly in emerging markets, reliable data may not be available to assess the creditworthiness of customers, and cultural characteristics determine the willingness to pay when times are tough and money is needed for other expenses.

c. People in different countries react differently to various kinds of collection mechanisms because of their cultural characteristics, with aggressive collection efforts alienating people in some countries while being absolutely necessary in other countries to collect amounts owed.

d. All of the statements above are reasons credit policy is more of a challenge abroad than at home.

3. Bilateral and multilateral netting are devices that allow the MNE to do which of the following?

a. Use its internal corporate network to reposition funds among the operating units without incurring significant transactions costs or running afoul of blockage restrictions.

b. Minimize transactions costs for intracompany payables and receivables management by using accounting entries rather than a physical flow of funds to debit/credit the relevant accounts on the accounting books of each subsidiary involved in the transaction.

c. Circumvent strong foreign exchange and capital restrictions in countries that have these restrictions by flowing only the net payable out of the country or the net receivable into the country.

d. All of the statements above are uses of netting.

4. The blockage of global funds transfers is a fact of life that MNEs must manage. The reasons governments block funds include all except which of the following statements?

a. To manage the country's foreign exchange reserves and currency's value.

b. To stimulate local investment and increase capital availability.

c. To encourage imports.

d. To increase an MNE's commitment to the local economy.