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Question 14

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International Business Methods Snyder Golf Co., a U.S. firm that sells high-quality golf clubs in the United States, wants to expand internationally by selling the same golf clubs in Brazil.

a.         Describe the tradeoffs that are involved for each method (such as exporting, direct foreign investment, etc.) that Snyder could use to achieve its goal.

b.         Which method would you recommend for this firm? Justify your recommendation.


Question 17

International Joint Venture Anheuser-Busch (which is now part of AB InBev due to a merger), the producer of Budweiser and other beers, has engaged in a joint venture with Kirin Brewery, the largest brewery in Japan. The joint venture enabled Anheuser-Busch to have its beer distributed through Kirin’s distribution channels in Japan. In addition, it could utilize Kirin’s facilities to produce beer that would be sold locally. In return, Anheuser-Busch provided information about the American beer market to Kirin.

a.                   Explain how the joint venture enabled Anheuser- Busch to achieve its objective of maximizing shareholder wealth.

he international business.

c.   Many international joint ventures are intended to circumvent barriers that normally prevent foreign competition. What barrier in Japan did Anheuser- Busch circumvent as a result of the joint venture? What barrier in the United States did Kirin circumvent as a result of the joint venture?

d.   Explain how Anheuser-Busch could have lost some of its market share in countries outside Japan as a result of this particular joint venture.



Exposure of MNCs to Exchange Rate Movements Because of the low labor costs in Thailand, Melnick Co. (based in the United States) recently established a major research and development subsidiary there that it owns. The subsidiary was cre- ated to improve new products that the parent of Melnick can sell in the United States (denominated in dollars) to U.S. customers. The subsidiary pays its local employees in baht (the Thai currency). The subsidiary has a small amount of sales denominated in baht, but its expenses are much larger than its revenue. It has just obtained a large loan denominated in baht that will be used to expand its subsidiary. The business that the parent of Melnick Co. conducts in the United States is not exposed to exchange rate risk. If the Thai baht weakens over the next 3 years, will the value of Melnick Co. be favorably affected, unfavorably affected, or not affected? Briefly explain.




Impact of Uncertainty on an MNC’s Valuation Assume that Alpine Co. is a U.S. firm that has direct foreign investment in Brazil as a result establishing a subsidiary there. Political conditions have changed in Brazil, but the best guess by investors of the future cash flows per year for Alpine Co. has not changed. Yet, there is more uncertainty surrounding the best guess of Alpine’s cash flows. In other words, the distribution of possible outcomes above and below the best guess has expanded. Would the change in uncertainty cause the prevailing value of Alpine Co. to increase, decrease, or remain unchanged? Briefly explain.