So it deals with changes In cash flows that results room existing contractual obligations. B. Translation exposure Translation exposure Is the potential for accounting-derived changes In owner’s equity to occur because of the need to “translate” foreign currency financial statements of foreign subsidiaries into a single reporting currency to prepare worldwide consolidated financial statements. C. Functional currency It is the currency of the primary economic environment in which the subsidiary operates and in which It generates cash flows.
It also the dominant currency used by that foreign subsidiary In its day to day operations. D. Beta and what It measures. Beta measures the variability of the rate of return, Formula defines beta as the measure of systematic risk for security. When Beta is less than 1. 0, returns are less volatile than the market. Then, Beta will have a calculated value of greater than 1. 0 if the rate of return is more volatile than the market rates e. Incremental cost of capital The incremental cost of capital refers to the average cost a company incurs to issue one additional unit of debt or equity.
The incremental cost of capital varies according to how many more or fewer units of debt or equity a company wishes to issue. F. WAC The cost of capital Is the weighted average cost of capital formula (WAC), which weights the cost of debt and equity, according to the company’s capital structure. Be specific : All capital sources ; common stock, preferred stock, bonds and any other firm increases as the beta and rate of return on equity increases, as an increase in WAC notes a decrease in valuation and a higher risk.
Reasons: (Background) In the global market, many firms have been assisted to become Ones because they now have access to global cost and availability of capital, but the bad news is that correlation among securities markets has increased, thereby reducing, but not eliminating, the benefits of international portfolio diversification. Under this situation, would global investors o be willing to pay a premium for a share in a good corporate governance company? YES! Because corporate governance can be improved by having diverse board members from other cultures.
In my opinion, having diverse board members from other cultures, this kind of “importing”, which signals a willingness on the part of the firm to expose itself to improved corporate governance and enhances its reputation in the financial markets by letting external members or factors to involve. Moreover, this action might gain economies of scale or scope or a variety of other commercial advantages. 8. Name three ways listing equity on foreign exchange affects a company? Hint: one way is that improves the liquidity of the company. ) Increases value of the shares because company is not bound in local market and one market Increases firm’s visibility b)Establish a secondary market Can create compensation toll for foreign employees c) Creates a currency source for buying assets in the country 9. How can transfer pricing be used the manage tax Jurisdiction? Generally speaking, transfer pricing is a profit allocation method used to attribute a corporation’s net profit or loss before tax to tax Jurisdictions. Transfer prices are functioning between controlled (or related) legal entities within the same group.
Legal entities considered under the control of a single corporation include branches and companies that are wholly or majority owned ultimately by the parent corporation. Certain Jurisdictions consider entities to be under common control if they share family member on their boards of directors. (Involved field), it refers to the setting, analysis, documentation, and adjustment of charges made between related parties for goods, services, or use of property (including intangible property). Transfer prices among components of an enterprise may be used to reflect allocation of resources among such components, or for other purposes.
Functioning in Tax(specific): “Transfer prices are significant for both taxpayers and tax administrations because they determine in large part the income and expenses, and therefore taxable profits, of associated enterprises in different tax Jurisdictions. ” 10. Name five ways to provide sustainable competitive advantage when determining if FED is appropriate for a company? A) Economies of scale and scope can be developed in production, marketing, finance research and development, remonstration, and purchasing.
All of these areas have significant competitive advantages of being large, whether size is duo to international or domestic, b) both a human and a technical viewpoint. (GE, home consumable products) c) Advanced technology includes both scientific and engineering skills. (High tech, R&D) d) Companies demonstrate financial strength by achieving and maintaining a global cost and availability of capital. E) Firm create their own firm-specific advantages by producing and marketing differentiated products. F) Brand name in their home market
