week 4 assignment 47


Read Chapters 13 & 14

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Answer the following questions using the “TURNITIN” link directly below these instructions. Late work is not accepted. Refer to the Class Schedule for due dates.

Chapter 13


that you wanted to expand your Learning English business to other

non-U.S. countries where some individuals may want to speak English.


Explain why you might be able to stabilize the profits of your total

business in this manner. Review the motives for direct foreign

investment that are identified in this chapter. Which of these motives

are most important?

b. Why would a city such as Montreal be a less desirable site for your business than a city such as Mexico City?


Describe the conditions in which your total business would experience

weak effects even if the business was spread across 3 or 4 countries.


What factors affect the probability of these conditions occurring? (In

other words, explain why the conditions could occur in one set of

countries, but not another set of countries).

e. What data would you review to assess the probability of these conditions occurring?


Consider that the prevailing service you offer is teaching individuals

in Mexico to speak English, and your business has already created some

supplemental pamphlets and CDs that translate common Spanish terms into

English. How could you expand your business in a manner that may allow

you to benefit from economies of scale (and perhaps even benefit from

your existing business reputation)? When you attempt to benefit from

economies of scale, do you forgo diversification benefits? Explain.


How would you come to a decision on whether to pursue business

expansion that capitalizes on economies of scale even if it would forgo

diversification benefits? Do you think economies of scale would be more

important or less important than diversification for your business?

h. Is there any way to achieve economies of scale and yet still achieve diversification benefits?

Chapter 14


Review the different items that are used in the multinational capital

budgeting example (Spartan Inc.). Describe the items that would be

included on a spreadsheet if you were to conduct a multinational capital

budgeting analysis of investing dollars to expand your existing

language business in a different location.

b. Assume that you

recognize your limitations in predicting the future exchange rate of the

invoice currency for your expanded business. You think that there are

several possible exchange rate scenarios, each with equal probability of

occurrence. Explain how you could use this information to estimate the

future NPV and make a decision about whether to accept or reject the


c. Now assume that there is also much

uncertainty about the demand for your service by individuals. Explain

how you can attempt to incorporate this uncertainty along with the

uncertainty of exchange rate movements so that you can make a decision

about whether to accept or reject the project.


Explain how you would derive a required rate of return for your capital

budgeting analysis. What type of information would you use to derive the

required rate of return?