Exam 13: Sourcing Equity Capital Globally

ADRs that are created at the request of a foreign firm wanting its shares traded in the United States are ________.

Empirical evidence has found that on average public firms that have been privatized by issuing public equity have

ADRs cannot be exchanged for the underlying shares of the foreign stock, therefore, arbitrage cannot keep the prices in line with the foreign price of the stock.

The expected return on equities is greater than the expected return on debt in part because

Japan has low median stock prices but more than 50% of the world's highest priced shares of 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 change in the firm's WACC after the international equity issue?