Running Your Own MNC Sunshine Tea LLC

Establishing a Subsidiary in Foreign Country

1. Identify the disadvantages associated with establishing a small subsidiary for your specific business in the foreign country of concern.

Deriving a Required Rate of Return for an International Project

1.   Consider a possible project that would result in expansion of your international business. Describe how you would derive a required rate of return for this project.

Estimating Cash Flows of an International Project

1. If you seriously considered whether to implement your international business idea, you would have to measure the costs and benefits of this idea. Describe how you would estimate the dollar revenue to be received from your business.
2. Describe how you would estimate the expenses associated with your business.
3. Describe how you would estimate the net cash flows (in dollars) of your business.
4. Explain why your estimate of the net cash flows (in dollars) could be overestimated.

Assessing Exposure to Country Risk

1. Describe the financial factors that expose your business to country risk.
2. Describe the political factors that expose your business to country risk.

Capital Structure Decisions

1. Describe the capital structure that you would use to run your business.
2. Why might the proportion of equity to be used in your business be limited when the business is first created?

Long-Term Debt-Denomination Decision

1. If you planned to borrow long-term funds, you could borrow dollars or you could borrow the foreign currency of concern. Using the Internet or other sources of data, compare the U.S. interest rate to the foreign interest rate over the last 8 quarters. Which interest rate is typically higher?
2. Explain why you might be able to reduce your exposure to exchange rate risk by borrowing long-term funds denominated in the foreign currency of concern.