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Multinational Financial Management, Multinational Model - Coggle Diagram
Multinational Financial Management
Management of MNC
Financial decisions are affected
Marketing
Management
Accounting and information systems
Agency Problems
Managers and shareholders
Agency Costs
Maximize shareholder wealth
Parent control of agency problems
Corporate control of agency problems
Sarbanes-Oxley Act (SOX)
Stock price maximization.
Valuation Model for an MNC
Domestic Model
Dollar Cash Flows
Cost of Capital
Uncertainty Surrounding MNC Cash Flows
Exposure to international economic conditions
Exposure to international political risk
Exposure to international political risk
Uncertainty Affects the MNC’s cost of Capital
The return on investment required by investors
The MNC’s valuation decreases.
Management Structure of MNC
Centralized
Decentralized
Internet Facilitates Management Control
How firm enagage in interantinonak bussiness
Acquisitions
Liquidation may be difficult if the foreign subsidiary performs poorly
Acquisitions of firms in foreign countries allows firms to have
full control over their foreign businesses and to quickly obtain
a large portion of foreign market share.
Liquidation may be difficult if the foreign subsidiary performs
poorly.
Franchising
Allows penetration into foreign markets without a major
investment in foreign countries.
support assistance, and possibly an initial investment in the
provide a specialized sales or service strategy,
International Trade
Relatively conservative approach
The internet facilitates international trade by allowing firms to advertise their products and accept orders on their website.
Minimal risk — no capital at risk
Joint Ventures
A ventual that is jointly owned and operated by two or more firms. A firms enter the foreign market by engaging in a joint venture with firms that reside in those markets
Allows two firms to apply their respective cooperative
advantages in a given project.
Licensing
some other specified benefits.
Allows firms to use their technology
Major disadvantage: difficult to ensure quality control in
foreign production process
patents, trademarks, or trade names) in exchange for fees or
Obligates a firm to provide its technology (copyrights,
Establishment of New Foreign Subsidiaries
Firms can penetrate markets by establishing new operations
in foreign countries
Requires a large investment
May require smaller investment than buying existing firm
Acquiring new as opposed to buying existing allows
operations to be tailored exactly to the firms needs
Summary of Methods
International trade and licensing usually not included.
International trade and licensing usually not included.
Any method of increasing international business that
Requires a direct investment in foreign operations is referred
to as direct foreign investment (DFI)
Multinational Model
Valuation of an MNC that uses two currencies
Valuation of an MNC that uses multiple currencies
Valuation of an MNC’s cash flows over multiple periods