Question 1

Solve for the weighted average cost of capital:

Accepted Answer

A) 8.67% 
B) 8.00% 
C) 7.60% 
D) 7.33% 
E) 7.14% 
A) 8.67% 
B) 8.00% 
C) 7.60% 
D) 7.33% 
E) 7.14% A

Question 2

Compute the debt-to-equity ratio for a firm that has a debt-to-value ratio of 60%.

Accepted Answer

A) 1/3 
B) 2/5 
C) 3/2 
D) 2/3 
E) None of the above 
A) 1/3 
B) 2/5 
C) 3/2 
D) 2/3 
E) None of the above C

Question 3

Assume that the risk-free rate of return is 4%,and the expected return on the market portfolio is 10%.If the systematic risk inherent in the stock of ABC Corporation is 1.80,using the Capital Asset Pricing Model (CAPM)calculate the expected return of ABC.

Accepted Answer

A) 14.0% 
B) 14.8% 
C) 16.0% 
D) 16.8% 
A) 14.0% 
B) 14.8% 
C) 16.0% 
D) 16.8% B

Question 4

In the notation of the book,K = (1 - $\lambda$)Kl + $\lambda$ (1 - $\tau$)i Which of the following are correct?

Accepted Answer

A) The debt-to-equity ratio is$\lambda$ 
B) The cost of equity capital for a levered firm is K 
C) The pre-tax cost of debt capital is i 
D) All of the above 
A) The debt-to-equity ratio is$\lambda$ 
B) The cost of equity capital for a levered firm is K 
C) The pre-tax cost of debt capital is i 
D) All of the above

Question 5

Solve for the weighted average cost of capital:

Accepted Answer

A) 8.67% 
B) 8.00% 
C) 7.60% 
D) 7.33% 
E) 7.14% 
A) 8.67% 
B) 8.00% 
C) 7.60% 
D) 7.33% 
E) 7.14%

Question 6

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 1½.

Accepted Answer

A) ⅓ 
B) ½ 
C) 3/5 
D) ⅔ 
E) 5/7 
A) ⅓ 
B) ½ 
C) 3/5 
D) ⅔ 
E) 5/7

Question 7

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 1.

Accepted Answer

A) ⅓ 
B) ½ 
C) 3/5 
D) ⅔ 
E) 5/7 
A) ⅓ 
B) ½ 
C) 3/5 
D) ⅔ 
E) 5/7

Question 8

Suppose that the firm's cost of capital can be reduced from Kl under the local capital structure to Kg under an internationalized capital structure.The take-away lesson from the graph is that

Accepted Answer

A) The firm can then increase its profitable investment outlay from Il to Ig, contributing to the firm's value. 
B) A reduced cost of capital increases the firm's value not only through increased investments in new projects but also through revaluation of the cash flows from existing projects. 
C) Kl and Kg represent, respectively, the cost of capital under local and international capital structures; IRR represents the internal rate of return on investment projects; Il and Ig represent the optimal investment outlays under the alternative capital structures. 
D) All of the above 
A) The firm can then increase its profitable investment outlay from Il to Ig, contributing to the firm's value. 
B) A reduced cost of capital increases the firm's value not only through increased investments in new projects but also through revaluation of the cash flows from existing projects. 
C) Kl and Kg represent, respectively, the cost of capital under local and international capital structures; IRR represents the internal rate of return on investment projects; Il and Ig represent the optimal investment outlays under the alternative capital structures. 
D) All of the above

Question 9

Solve for the weighted average cost of capital:

Accepted Answer

A) 8.67% 
B) 8.00% 
C) 7.60% 
D) 7.33% 
E) 7.14% 
A) 8.67% 
B) 8.00% 
C) 7.60% 
D) 7.33% 
E) 7.14%

Question 10

One likely effect of a company or government instituting foreign equity ownership restrictions is

Accepted Answer

A) a decrease in domestic stock prices. 
B) an increase in domestic stock prices. 
C) a transfer of wealth from international shareholders to domestic shareholders. 
D) none of the above 
A) a decrease in domestic stock prices. 
B) an increase in domestic stock prices. 
C) a transfer of wealth from international shareholders to domestic shareholders. 
D) none of the above

Question 11

In the Capital Asset Pricing Model (CAPM),the term Beta,$\beta$,is

Accepted Answer

A) a measure of systematic risk inherent in a security. 
B) calculated as the "covariance of future returns between a specific security and the market portfolio" divided by the "variance of returns of the market portfolio". 
C) both a) and b) 
D) none of the above 
A) a measure of systematic risk inherent in a security. 
B) calculated as the "covariance of future returns between a specific security and the market portfolio" divided by the "variance of returns of the market portfolio". 
C) both a) and b) 
D) none of the above

Question 12

Studies suggest that international capital markets are not segmented anymore

Accepted Answer

A) and are therefore fully integrated. 
B) but are not as yet fully integrated. 
C) so cross-listing of shares will not lower a firm's cost of capital. 
D) none of the above 
A) and are therefore fully integrated. 
B) but are not as yet fully integrated. 
C) so cross-listing of shares will not lower a firm's cost of capital. 
D) none of the above

Question 13

Solve for the weighted average cost of capital:

Accepted Answer

A) 8.67% 
B) 8.00% 
C) 7.60% 
D) 7.33% 
E) 7.14% 
A) 8.67% 
B) 8.00% 
C) 7.60% 
D) 7.33% 
E) 7.14%

Question 14

At the optimal capital structure,

Accepted Answer

A) K = (1 - $\lambda$)Kl + $\lambda$ (1 - $\tau$)i will be minimized. 
B) The debt-equity ratio will be equal to the debt-to-value ratio. 
C) K = (1 - $\lambda$)Kl + $\lambda$ (1 - $\tau$)i will be maximized. 
D) None of the above 
A) K = (1 - $\lambda$)Kl + $\lambda$ (1 - $\tau$)i will be minimized. 
B) The debt-equity ratio will be equal to the debt-to-value ratio. 
C) K = (1 - $\lambda$)Kl + $\lambda$ (1 - $\tau$)i will be maximized. 
D) None of the above

Question 15

Find the weighted average cost of capital for a firm that has a debt-to-equity ratio of 2,a tax rate of 40%,a levered cost of equity of 12% and a pre-tax cost of debt of 9%.

Accepted Answer

A) 7.6% 
B) 7.968% 
C) 10% 
D) none of the above 
A) 7.6% 
B) 7.968% 
C) 10% 
D) none of the above

Question 16

The following is an outline of certain potential benefits as well as costs associated with the cross-border listings of stocks: (i)- the company can expand its potential investor base
(ii)- issues involving the disclosure and listing requirements
(iii)- creates a secondary market for the company's shares
(iv)- volatility spillover from the overseas markets
(v)- liquidity
(vi)- control of the company by foreigners
(vii)- enhances the visibility of the company's name and its products in foreign marketplaces
Which of the following represent all the potential benefits of the cross-border listings of stocks?

Accepted Answer

A) (i), (ii), and (iii) 
B) (ii), (iv), and (vi) 
C) i), (iii), (v), and (vii) 
D) (iv), (v), (vi), and (vii) 
A) (i), (ii), and (iii) 
B) (ii), (iv), and (vi) 
C) i), (iii), (v), and (vii) 
D) (iv), (v), (vi), and (vii)

Question 17

The parent company should decide the financing method for its own subsidiaries

Accepted Answer

A) with a view toward minimizing the parent's overall cost of capital. 
B) by copying the norms of the host country. 
C) with a view toward gaming the bankruptcy system of the host country. 
D) none of the above 
A) with a view toward minimizing the parent's overall cost of capital. 
B) by copying the norms of the host country. 
C) with a view toward gaming the bankruptcy system of the host country. 
D) none of the above

Question 18

Systematic risk refers to

Accepted Answer

A) the diversifiable (company specific) risk of an asset. 
B) the nondiversifiable (market) risk of an asset. 
C) economic and political risk. 
D) the risk that can be hedged. 
A) the diversifiable (company specific) risk of an asset. 
B) the nondiversifiable (market) risk of an asset. 
C) economic and political risk. 
D) the risk that can be hedged.

Question 19

Companies domiciled in countries with weak investor protection can reduce agency costs between shareholders and management

Accepted Answer

A) by moving to a better county. 
B) by listing their stocks in countries with strong investor protection. 
C) by voluntarily complying with the provisions of the U.S.Sarbanes-Oxley Act. 
D) having a press conference and promising to be nice to their investors. 
A) by moving to a better county. 
B) by listing their stocks in countries with strong investor protection. 
C) by voluntarily complying with the provisions of the U.S.Sarbanes-Oxley Act. 
D) having a press conference and promising to be nice to their investors.

Question 20

Find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of 4/5.

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
E) 5 
A) 1 
B) 2 
C) 3 
D) 4 
E) 5

Solve for the weighted average cost of capital:

Compute the debt-to-equity ratio for a firm that has a debt-to-value ratio of 60%.

Assume that the risk-free rate of return is 4%,and the expected return on the market portfolio is 10%.If the systematic risk inherent in the stock of ABC Corporation is 1.80,using the Capital Asset Pricing Model (CAPM)calculate the expected return of ABC.

In the notation of the book,K = (1 - $\lambda$ )K_l + $\lambda$ (1 - $\tau$ )i Which of the following are correct?

Solve for the weighted average cost of capital:

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 1½.

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 1.

Suppose that the firm's cost of capital can be reduced from K^l under the local capital structure to K^g under an internationalized capital structure.The take-away lesson from the graph is that

Solve for the weighted average cost of capital:

One likely effect of a company or government instituting foreign equity ownership restrictions is

In the Capital Asset Pricing Model (CAPM),the term Beta, $\beta$ ,is

Studies suggest that international capital markets are not segmented anymore

Solve for the weighted average cost of capital:

At the optimal capital structure,

Find the weighted average cost of capital for a firm that has a debt-to-equity ratio of 2,a tax rate of 40%,a levered cost of equity of 12% and a pre-tax cost of debt of 9%.

The parent company should decide the financing method for its own subsidiaries

Systematic risk refers to

Companies domiciled in countries with weak investor protection can reduce agency costs between shareholders and management

Find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of 4/5.

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters

Exam 17: International Capital Structure and the Cost of Capital

Solve for the weighted average cost of capital:

Compute the debt-to-equity ratio for a firm that has a debt-to-value ratio of 60%.

Assume that the risk-free rate of return is 4%,and the expected return on the market portfolio is 10%.If the systematic risk inherent in the stock of ABC Corporation is 1.80,using the Capital Asset Pricing Model (CAPM)calculate the expected return of ABC.

In the notation of the book,K = (1 - λ\lambdaλ )Kl + λ\lambdaλ (1 - τ\tauτ )i Which of the following are correct?

Solve for the weighted average cost of capital:

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 1½.

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 1.

Suppose that the firm's cost of capital can be reduced from Kl under the local capital structure to Kg under an internationalized capital structure.The take-away lesson from the graph is that

Solve for the weighted average cost of capital:

One likely effect of a company or government instituting foreign equity ownership restrictions is

In the Capital Asset Pricing Model (CAPM),the term Beta, β\betaβ ,is

Studies suggest that international capital markets are not segmented anymore

Solve for the weighted average cost of capital:

At the optimal capital structure,

Find the weighted average cost of capital for a firm that has a debt-to-equity ratio of 2,a tax rate of 40%,a levered cost of equity of 12% and a pre-tax cost of debt of 9%.

The parent company should decide the financing method for its own subsidiaries

Systematic risk refers to

Companies domiciled in countries with weak investor protection can reduce agency costs between shareholders and management

Find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of 4/5.

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters

In the notation of the book,K = (1 - $\lambda$ )K_l + $\lambda$ (1 - $\tau$ )i Which of the following are correct?

Suppose that the firm's cost of capital can be reduced from K^l under the local capital structure to K^g under an internationalized capital structure.The take-away lesson from the graph is that

In the Capital Asset Pricing Model (CAPM),the term Beta, $\beta$ ,is