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ACCT 603 – Spring 2019 Midterm
1) Please read the article “For Multinational Firms, Brazil Becomes a Pain in the
Wallet” on the next page as a foundation for your discussion. Write a one-page
essay that focuses on the following issues:
a) Does it make sense for a firm to go global, i.e. become a multinational
b) In your discussion please explain 3 advantages and 3 disadvantages of
going global, and
c) finish with a recommendation on whether jumping in the global arena in
the current political and economical environment is warranted.
d) You are required to also discuss material we covered in class. In other
words, your discussion cannot be based purely on the article provided.
2) Please only write one page (you can go a little over). You have to write full
sentences (no bullet-points). Your essay should have a good flow, discuss
pros and cons and finish with a recommendation on whether jumping in the
global arena in the current political and economical environment is warranted.
3) There are no requirements on font or line-spacing. However, I expect your
essay to be professionally formatted. This includes references if you cite other
work. Please write your exam on your computer, save it, and email in back to
4) This is an individual exam and by typing your name on the top of the page
“Student Name” you acknowledge to comply with Pepperdine’s Code of
5) You have 4 hours to complete the exam (8 AM – 11.59 PM PST on 3/18/2019).
Once finished, upload it to “Assignments in Sakai” Please name your file:
ACCT 603 and your name.
6) If you have any questions, my cell phone number is 858.531.8482
ACCT 603 Midterm – Spring 2019 – Dr. Andreas Simon
ARTICLE: For Multinational Firms, Brazil Becomes a Pain in the Wallet
Weak currency, recession keep recent investments in once-hot market from paying off
By Maxwell Murphy and Emily Chasan Wall Street Journal Sept. 21, 2015 7:34 p.m. ET
As many multinational companies close their third-quarter books in coming weeks, their finance
chiefs are likely to face a stark reality: the weakest results coming out of Brazil in over a decade.
Medical-device maker Medtronic PLC is more worried about the political and economic turmoil
in Brazil, the world’s eighth largest economy, than the worsening slowdown in China, while
chemical manufacturer FMC Corp. is “aggressively” paring its Brazilian operations.
German car-parts maker Continental AG says falling auto sales, onerous tax payments and a
growing regulatory burden make business more difficult in a region that is too large for it to
abandon. “We recognize that the cost of doing business in Brazil is likely to remain elevated quite
probably beyond just the 2015/2016 season,” FMC Chief Financial Officer Paul Graves told
investors at a conference this month.
Brazil’s credit, which had carried an investment-grade rating for seven years, is freshly back in
junk territory; the country’s currency, the real, is historically weak; the economy is in recession;
and inflation is high.
In many cases, that means the cash companies recently invested in the once-hot emerging market
is no longer paying off. The pressure on all fronts is causing businesses to rethink their
operations. “Whether enough Brazilians remember hyperinflation” from the 1980s and early
1990s, and “want to go back,” will ultimately determine the government’s response to the
country’s economic crisis, said Daniel Blumen, a founding partner of consulting firm Treasury
Alliance Group LLC.
Brazil’s 2016 budget, which was announced this month and needs congressional approval, calls
for the resurrection of a controversial financial-transaction tax. The levy is intended to narrow
Brazil’s budget deficit by placing a 0.2% tax on such transactions as currency exchanges and
The tax is intended to raise about $8.4 billion a year, and comes alongside the removal of a
number of corporate tax incentives. Brazilian Finance Minister Joaquim Levy said the tax
measure would be temporary, lasting no more than four years.
FMC has said it is lowering its revenue from Brazil by winnowing out less- profitable customers,
while also slimming down operations there to reduce costs. The company has stepped up its
efforts to collect the cash it is owed, especially in Brazilian currency, reducing real-denominated
accounts receivable to a third of its total. Over the first eight month of the year, the cash it
collected was equivalent to 150% of sales.
The eyes of many corporate executives are trained on China to gauge its economic stamina, but
Brazil’s problems are of equal, or even greater, concern to businesses. “If there is any country I
would tell you I am more nervous about, it’s not China, it’s probably Brazil,” said Medtronic
CFO Gary Ellis.
ACCT 603 Midterm – Spring 2019 – Dr. Andreas Simon
Indeed, more than one in five S&P 500 companies pointed to Brazil’s performance during their
most recent earnings conference calls. Brazil is Avon Products Inc.’s largest market, accounting
for nearly $1.9 billion of the cosmetic company’s sales last year, nearly double its sales in the
U.S. For paint manufacturer Sherwin-Williams Co. , it is the second- largest market by volume
after the U.S.
On top of Brazil’s economic woes, a corruption scandal at state-run energy giant Petróleo
Brasileiro SA, or Petrobras, has the government and banks keeping a close watch on any cash
leaving the country.
Sherwin-Williams is “seeing the Petrobras scandal with really long legs throughout the entire
country,” said CFO Sean Hennessy, and those local problems are hurting the company’s Asian
operations because Petrobras uses Sherwin-Williams coatings on some of its products.
For certain businesses, simply putting excess Brazilian profits to work elsewhere in the world is a
hassle. “You cannot just get money out of Brazil anymore,” said Continental CFO Wolfgang
Schäfer. Companies have to pay taxes on money that leaves, he said, and banks and regulators
require substantial documentation to justify why the money should leave the country.
Despite the difficulty, Brazil, like China, offers big growth opportunities, and many companies
feel compelled to stay. “It’s a market which is producing around three million cars [a year] at the
moment, Mr. Schäfer said. “We have to be there, so in the end we are not investing less there, but
it makes business more difficult.”
To be sure, not all businesses are flummoxed. Prudential Financial Inc. said that outside of Japan,
where it is also growing, its $14 million year-to-year increase in second-quarter life-insurance
sales was mainly from Brazil. Animal-health company Zoetis Inc., meanwhile, said its business
serving the Brazilian cattle industry was strong in the quarter ended in June.
But companies like struggling Avon have little choice but to stay put. On an earnings conference
call in July, James Scully, Avon’s CFO, said the company’s second-quarter revenue from
Brazil—before the negative effects of currency translation—was off 6% from a year earlier. The
country raised its taxes on cosmetics products in June, which was responsible for two- thirds of
the decline.
Brazil is known as a strict tax jurisdiction. The World Bank Group says it takes Brazilian
corporate tax preparers 2,600 hours each year to navigate its requirements. That compares with
261 hours in China and 175 in both the U.S. and the average large economy in the world’s
developed countries. In a separate global competitiveness study by The World Economic Forum,
Brazil ranks 139th of 143 countries in the effectiveness of tax policies in encouraging investment.
“Brazil is obviously challenging right now,” an Avon spokeswoman said, “but we are committed
for the long term.” She said Avon will provide a detailed breakdown of Brazilian results in its
next quarterly report.
ACCT 603 Midterm – Spring 2019 – Dr. Andreas Simon
ACCT 603 Midterm – Spring 2019 – Dr. Andreas Simon

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