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Chapter 5: Q2 DQ (page 679)

What allegations are sometimes made against foreign affiliates of multinational firms and against the multinational firms themselves?

Short Answer

Expert verified

Allegations against affiliated companies include subversion of government, instability in currencies, labor exploitation, and low wages.

The allegation against multinational firms includes labor union charges, technology transfer, and capital to foreign nations.

Step by step solution

01

Explanation of Multinational Companies

Multinational companies carry out business activities outside the national borders and have invested 30% or more.

02

Allegations explanations

In the case of foreign affiliates, it destabilizes the foreign country's government and destabilizes the foreign currencies. Less developed countries also allege labor exploitation as lesser wages are offered in these countries by the MNC.

In the case of a multinational firm, the allegations may be related to the transfer of capital and technology to another country, as firms invest in other countries to run their business. Also, another allegation is related to labor union charges, where jobs are exported to other countries, as production facility is set up in another country.

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Most popular questions from this chapter

The Clark Corporation desires to expand. It is considering a cash purchase of Kent Enterprises for \(3 million. Kent has a \)700,000 tax loss carryforward that could be used immediately by the Clark Corporation, which is paying taxes at the rate of 30 percent. Kent will provide $420,000 per year in cash flow (aftertax income plus depreciation) for the next 20 years. If the Clark Corporation has a cost of capital of 13 percent, should the merger be undertaken?

A Peruvian investor buys 150 shares of a U.S. stock for \(7,500 (\)50 per share). Over a year, the stock goes up by \(4 per share.

  1. If there is a 10 percent gain in the value of the dollar versus the Peruvian nuevo sol, what will be the total percentage return to the Peruvian investor? First, determine the new dollar value of the investment and multiply this figure by 1.10. Divide this answer by \)7,500 and get a percentage value, and then subtract 100 percent to get the percentage return.
  2. Instead assume that the stock increases by $7, but that the dollar decreases by 10 percent versus the nuevo sol. What will be the total percentage return to the Peruvian investor? Use 0.90 in place of 1.10 in this case.

What risks does a foreign affiliate of a multinational firm face in today's business world?

Suggest some ways in which firms have tried to avoid being part of a target takeover

Explain how exports and imports tend to influence the value of a currency
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