a. Explain how the theory of comparative advantage relates to the need for international business.

ANSWER: The theory of comparative advantage implies that countries should specialize in production, thereby relying on other countries for some products. Consequently, there is a need for international business.

b. Explain how the product cycle theory relates to the growth of an MNC.

ANSWER: The product cycle theory suggests that at some point in time, the firm will attempt to capitalize on its perceived advantages in markets other than where it was initially established.

3. Imperfect Markets.

a. Explain how the existence of imperfect markets has led to the establishment of subsidiaries in foreign markets.

ANSWER: Because of imperfect markets, resources cannot be easily and freely retrieved by the MNC. Consequently, the MNC must sometimes go to the resources rather than retrieve resources (such as land, labor, etc.).

b. If perfect markets existed, would wages, prices, and interest rates among countries be more similar or less similar than under conditions of imperfect markets? Why?

ANSWER: If perfect markets existed, resources would be more mobile and could therefore be transferred to those countries more willing to pay a high price for them. As this occurred, shortages of resources in any particular country would be alleviated and the costs of such resources would be similar across countries.

4. International Opportunities.

a. Do you think the acquisition of a foreign firm or licensing will result in greater growth for an MNC? Which alternative is likely to have more risk?

ANSWER: An acquisition will typically result in greater growth, but it is more risky because it normally requires a larger investment and the decision can not be easily reversed once the acquisition is made.

b. Describe a scenario in which the size of a corporation is not affected by access to international opportunities.

ANSWER: Some firms may avoid opportunities because they lack knowledge about foreign markets or expect that the risks are excessive. Thus, the size of these firms is not affected by the opportunities.

c. Explain why MNCs such as Coca Cola and PepsiCo, Inc., still have numerous opportunities for international expansion.

ANSWER: Coca Cola and PepsiCo still have new international opportunities because countries are at various stages of development. Some countries have just recently opened their borders to MNCs. Many of these countries do not offer sufficient food or drink products to their consumers.

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ABC company wishes to arrange for overdraft facilities with its bankers during the period from April1 to June 30, 2018 when it will be manufacturing mostly for stock. Prepare Cash Budget for the above period from the following data, indicating the extent of Bank facilities, the company will require at the end of each month. Sales Purchases Wages $ $ $February2,00,000 2,50,000 10,000March2,20,000 2,80,000 11,000April2,50,000 3,00,000 12,000May3,00,000 3,40,000 13,000June2,80,000 3,20,000 12,000 10% of the sales are on cash basis. 50% of the remaining sales are realized in the month following the sales and the remaining 50% in the second month following. 5% sales commission is to be paid within the month following actual sales. Creditors are paid in the month following the month of purchases. Time lag in payment of wages 0.5 month. 12% Bonds of the face value of $1,00,000 were purchased on Jan. 1, 2018 on which interest is received monthly. Salaries to office staff is payable $5,000 p.m. Office rent is $3,000 p.m. Advance tax of $6,000 will be paid on June 15, 2018. Cash in hand on 1April, 2018 $1,20,000.

Attachments:

cash-budget-q….docx

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