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16. Impact of September 11. Following the terrorist attack on the U.S.

, the valuations of many


MNCs declined by more than 10 percent. Explain why the expected cash flows of MNCs
were reduced, even if they were not directly hit by the attacks.
ANSWER: An MNCs cash flows could be reduced in the following ways. First, a decline in
travel would affect any MNCs that have business in travel-related industries. The airline,
hotel, and tourist-related industries were expected to experience a decline in business. Layoffs
were announced immediately by many of these MNCs. Second, these effects on travel-related
industries can carry over to other industries, and weaken economies. Third, the cost of
international trade increased as a result of tighter restrictions on some products. Fourth, some
MNCs incurred expenses as a result of increasing security to protect their employees.

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