Exam 13: Sourcing Equity and Debt Globally

Wallet Drug Company has just recently raised money abroad for the first time in the history of the firm.Prior to the recent equity issue abroad,the firm had a D/V ratio of 40%,an effective tax rate of 30%,a before-tax cost of debt of 9%,and a domestic beta of 1.3.The expected return on the market portfolio was 13% and the risk-free rate was 5%.After the equity issue,Wallet Drug has a D/V ratio of 50%,their after-tax cost of debt has not changed,nor has the effective tax rate,the firm's international beta is 1.0,the expected return on the market portfolio is only 12%,and the risk-free rate is still 5%.What is the change in the firm's WACC after the international equity issue?

The modern Eurodollar market has been operating since ________.

________ are negotiable certificates issued by a bank to represent the underlying shares of stock,which are held in trust at a foreign custodian bank.

Strategic alliances are normally formed by firms that expect to gain synergies from which of the following?

The term "euro" as used in the euro equity market implies

The Eurocurrency market continues to thrive because it is a large international money market relatively free of governmental regulation and interference.

The authors identify four alternative financial instruments for sourcing equity abroad.Identify and explain one of these techniques.In your answer provide a motivation as to why a firm would wish to choose this particular technique for raising equity abroad.

Which of the following is the typical order of sourcing capital abroad?

For the most part,U.S.SEC disclosure requirements are ________ stringent than other,non-U.S.equity market rules.

Financial practice suggests that there is a range for an optimal capital structure for a firm within an industry rather than a specific optimal ratio of debt to equity.

Each ADR represents ________ of the shares of the underlying foreign stock.

Wallet Drug Company has just recently raised money abroad for the first time in the history of the firm.Prior to the recent equity issue abroad,the firm had a D/V ratio of 40%,an effective tax rate of 30%,a before-tax cost of debt of 9%,and a domestic beta of 1.3.The expected return on the market portfolio was 13% and the risk-free rate was 5%.After the equity issue,Wallet Drug has a D/V ratio of 50%,their after-tax cost of debt has not changed,nor has the effective tax rate,the firm's international beta is 1.0,the expected return on the market portfolio is only 12%,and the risk-free rate is still 5%.What is the firm's new cost of equity after the international issue?

Economic studies have found that international cross-listing of securities across financial markets resulted in ________ abnormal returns that were ________ for firms resident in emerging markets with a low level of legal barriers to capital flows than for firms resident in developed countries.

Which financial economists are most closely associated with the financial theory of optimal capital structure?

Most firms raise their initial capital in foreign markets.

Which of the following is NOT a factor offsetting the tax advantage of debt as a source of financing?

SEC rule 144A permits institutional buyers to trade privately placed securities without the previous holding periods restrictions and without requiring SEC registration.

Another school of thought about the worldwide trend toward fuller and more standardized disclosure rules is that the cost of U.S.level equity capital disclosure

Level I ADRs trade primarily

According to the U.S.school of thought,the worldwide trend toward fuller and more standardized disclosure rules should ________ the cost of equity capital.