Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 5: Q7DQ (page 679)

What factors would influence a U.S. business firm to go overseas?

Short Answer

Expert verified

The factors are purchasing power parity, interest rate, the balance of paymentsandgovernment policies.

Step by step solution

01

Meaning of Business Firms

Business firms are organisations or corporations of people who come together to carry out activities to earn revenue.

02

Step 2:Factors

The factors that will influence a US business firm to go overseas are as follows:

  1. Purchasing power parity: The difference between the purchasing power of different countries also influences the decision.
  2. Interest Rates: Foreign exchange rates are influenced by the interest rate as it is one of the economic variables; this will influence the decisions to go overseas.
  3. Balance of payments: The balance of payments shows the economic transactions of the nation
  4. Government Policies: The government controls the nation's central bank, which influences the foreign exchange rate. It might influence the decision of US business firms to go overseas.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Assume the following financial data for the Noble Corporation and Barnes

Enterprises:

Noble

Corporation

Barnes

Enterprises

Total earnings ......................................................... \(1,820,000 \)5,620,000

Number of shares of stock outstanding ................. 650,000 2,810,000

Earnings per share ................................................. \(2.80 \)2.00

Price-earnings ratio (P/E) ....................................... 203 283

Market price per share............................................ \(56 \)56

a.If all the shares of the Noble Corporation are exchanged for those of Barnes

Enterprises on a share-for-share basis, what will postmerger earnings per share

be for Barnes Enterprises? Use an approach similar to that in Table 20-3.

b.Explain why the earnings per share of Barnes Enterprises changed.

c.Can we necessarily assume that Barnes Enterprises is better off after the

merger?

What is a letter of credit?

The Jeter Corporation is considering acquiring the A-Rod Corporation.

The data for the two companies are as follows:

A-Rod Corp. Jeter Corp.

Total earnings ......................................................... \(1,000,000 \)4,000,000

Number of shares of stock outstanding ................. 400,000 2,000,000

Earnings per share ................................................. \(2.50 \)2.00

Price-earnings ratio (P/E) ....................................... 12 15

Market price per share ........................................... \(30 \)30

a.The Jeter Corp. is going to give A-Rod Corp. a 60 percent premium over

A-Rod’s current market value. What price will it pay?

b.At the price computed in part a,what is the total market value of A-Rod

Corp.? (Use the number of A-Rod Corp. shares times price.)

c.At the price computed in part a,what is the P/E ratio Jeter Corp. is assigning

A-Rod Corp?

d.How many shares must Jeter Corp. issue to buy the A-Rod Corp. at the

total value computed in part b?(Keep in mind that Jeter Corp.’s price per

share is $30.)

e.Given the answer to part d,how many shares will Jeter Corp. have after the

merger?

f.Add together the total earnings of both corporations and divide by the

total shares computed in part e.What are the new postmerger earnings per

share?

g.Why has Jeter Corp.’s earnings per share gone down?

h.How can Jeter Corp. hope to overcome this dilution?

Assume that Western Exploration Corp. is considering the acquisition of Ogden Drilling Company. The latter has a \(470,000 tax loss carryforward. Projected earnings for the Western Exploration Corp. are as follows: 20X1 20X2 20X3 Total Values Before-tax income ................................. \)185,000 \(250,000 \)370,000 \(805,000 Taxes (35%) ........................................... 64,750 87,500 129,500 281,750 Income available to stockholders .......... \)120,250 \(162,500 \)240,500 $523,250. How much will the total taxes of Western Exploration Corp. be reduced as a result of the tax loss carryforward? b. How much will the total income available to stockholders be for the three years if the acquisition occurs? Use the same format as that in the text.

The Hollings Corporation is considering a two-step buyout of the Norton Corporation. The latter firm has 2.5 million shares outstanding and its stock price is currently \(40 per share. In the two-step buyout, Hollings will offer to buy 51 percent of Norton’s shares outstanding for \)62 per share in cash and the balance in a second offer of 840,000 convertible preferred stock shares. Each share of preferred stock would be valued at 40 percent over the current value of Norton’s common stock. Mr. Green, a newcomer to the management team at Hollings, suggests that only one offer for all Norton’s shares be made at $59.25 per share. Compare the total costs of the two alternatives. Which is better in terms of minimizing costs?
See all solutions

Recommended explanations on Business Studies Textbooks

Corporate Finance

Read Explanation

Change Management

Read Explanation

Managers

Read Explanation

Business Development

Read Explanation

Strategic Direction

Read Explanation

Managerial Economics

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free