According to your slides, you can do international trade using one of the following options: Licensing,...

According to your slides, you can do international trade using one of the following options: Licensing, Franchising, Joint Venture, Acquisition of Existing Operation, Establishing New Foreign Subsidiaries. How are these different methods of doing international trade effect your company's cash flows? Your company's discount rate? Which methods are relatively more risky? Why?

Expert Solution

Licensing is when the brand name is licensed to a local firm in another country. The local firm carries out the business operations under the brand name, and pays a licensee fee or royalty fee to the brand owner. This option required low initial investment because most of the investment is done by the local firm. The license fee or royalty fee is usually a flat yearly fee, or a percentage of revenues. Thus, the initial cash outflow is low. The risk is also low because most of the operational risk is borne by the local firm. A lower risk entails a lower discount rate because risk and discount rate are directly related. Higher the risk, higher the required return and discount rate.

Franchising is similar to licensing, except that the franchise is given to several local firms instead of only one firm. The franchisees pay a franchise fee similar to a license fee - as a flat annual fee or as a percentage of revenue. The initial investment required is similar to the licensing option. The initial cash outflow is low. The risk is also low as most of the operational risk is borne by the local firm. A lower risk entails a lower discount rate because risk and discount rate are directly related. Higher the risk, higher the required return and discount rate.

Acquisition of existing operation and establishing new foreign subsidiaries involves higher initial investment as the business operation has to be built from scratch. Thus, the initial cash outflow is high. The risk involved is also high as the company bears the entire business risk itself. Due to higher risk, the discount rate is also high.

Joint Venture is when a business operation is set up jointly with another company. The other company shares the initial investment and the risk. Therefore, the initial cash outflow is neither low nor high. The risk is also neither low nor high, as is the discount rate

jeff jeffy answered 5 months ago

The textbook identifies three types of international business - international trade, licensing and protection of intellectual...

The textbook identifies three types of international business - international trade, licensing and protection of intellectual property, and foreign direct investment. Describe each type of business and then evaluate how each type of business uniquely interacts with human rights, whether prone to violate or support humand rights.

How can you study Creditability of potential Partner at the beginning of your international trade ?

Based on your viewing of the module on International Trade, answer the following question: If you...

Based on your viewing of the module on International Trade, answer the following question: If you buy an American car, is it truly an "American" car. Why or why not?

Using examples discuss how international trade can affect the environment (use one example that shows positive...

Using examples discuss how international trade can affect the environment (use one example that shows positive impact and one example that shows negative impact)

Are you in favor of using trade restrictions to regulate international trade? 75 words or more

question 9 According to the theory of international trade, A country that specializes and trade may...

question 9 According to the theory of international trade, A country that specializes and trade may be able to consume at a point outside or above its production possibility curve. A country that specializes and trade may be able to consume at a point on its production possibility curve. A country that specializes and trade may be able to consume inside or below its production possibility curve. A country that specializes and trade will produce less but consume more. 10...

What do you see as the key issue(s) in international trade? Please provide evidence for your...

What do you see as the key issue(s) in international trade? Please provide evidence for your reasoning. Thank you!

Do Agencies that Facilitate International Trade Prevent Free Trade?

This is a discussion on the global effect of international trade What do you see as...

This is a discussion on the global effect of international trade What do you see as the effect of increased trade tariffs on imports for retail trade in the US? Do you see an increase or decrease in goods being imported to US retail trade? Will profits be increasing or decreasing in the near future? You cannot see other posts until you have made one.

How do international trade policies impact your life? Consider the following examples: · What consumer benefits...

How do international trade policies impact your life? Consider the following examples: · What consumer benefits do you experience as a result of international trade policies? (For example, consider the availability of a wide range of low-cost, high-quality goods and services which are produced in other countries, such as cell phones and flat-screen televisions.) · As a voter, describe your concerns regarding international trade, such as the politics of free trade versus protection. Do you think tariffs or quotas should...

Question