Question 1

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 3.

Accepted Answer

A) 3/4 
B) 7/9 
C) 4/5 
D) 9/11 
E) 5/6 
A) 3/4 
B) 7/9 
C) 4/5 
D) 9/11 
E) 5/6

Question 2

Solve for the weighted average cost of capital:

Accepted Answer

A) 7.00% 
B) 6.89% 
C) 6.73% 
D) 6.67% 
E) 6.57% 
A) 7.00% 
B) 6.89% 
C) 6.73% 
D) 6.67% 
E) 6.57%

Question 3

For a firm confronted with a fixed schedule of possible new investments,any policy that lowers the firm's cost of capital will increase the profitable capital expenditures the firm takes on and increase the wealth of the firm's shareholders.One such policy is

Accepted Answer

A) internationalizing the firm's capital budgeting opportunities. 
B) internationalizing the firm's cost of capital. 
C) investing in riskier projects financed with debt. 
D) none of the above 
A) internationalizing the firm's capital budgeting opportunities. 
B) internationalizing the firm's cost of capital. 
C) investing in riskier projects financed with debt. 
D) none of the above

Question 4

Solve for the weighted average cost of capital:

Accepted Answer

A) 7.00% 
B) 6.89% 
C) 6.73% 
D) 6.67% 
E) 6.57% 
A) 7.00% 
B) 6.89% 
C) 6.73% 
D) 6.67% 
E) 6.57%

Question 5

Assume that XYZ Corporation is a leveraged company with the following information:   If XYZ's debt-to-total-market-value ratio is 40%,then its weighted average cost of capital,K,is:

Accepted Answer

A) 8% 
B) 9% 
C) 10% 
D) 12% 
A) 8% 
B) 9% 
C) 10% 
D) 12%

Question 6

Find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of ¾.

Accepted Answer

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

Question 7

Find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of ⅔.

Accepted Answer

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

Question 8

When the choice of financing a foreign subsidiary is between external debt and equity financing

Accepted Answer

A) many host governments tolerate the repatriation of funds in the form of interest much better than dividends. 
B) debt financing is generally secured from the World Bank, but only in developed countries. 
C) many host governments tolerate the repatriation of funds in the form of dividends much better than interest. 
D) none of the above 
A) many host governments tolerate the repatriation of funds in the form of interest much better than dividends. 
B) debt financing is generally secured from the World Bank, but only in developed countries. 
C) many host governments tolerate the repatriation of funds in the form of dividends much better than interest. 
D) none of the above

Question 9

Recent studies suggest that agency costs of managerial discretion are lower in Japan than in the United States.This suggests that

Accepted Answer

A) the cost of capital can be lower in Japan than in the United States, but only if international financial markets are not fully integrated. 
B) the cost of capital can be lower in Japan than in the United States, even if international financial markets are fully integrated. 
C) the cost of capital will be higher in Japan than in the United States, even if international financial markets are fully integrated. 
D) none of the above 
A) the cost of capital can be lower in Japan than in the United States, but only if international financial markets are not fully integrated. 
B) the cost of capital can be lower in Japan than in the United States, even if international financial markets are fully integrated. 
C) the cost of capital will be higher in Japan than in the United States, even if international financial markets are fully integrated. 
D) none of the above

Question 10

With regard to the financial structure of a foreign subsidiary

Accepted Answer

A) Using local financing can reduce political risk. 
B) A MNC that finances a foreign investment with home-country equity faces greater risk of expropriation than if it had financed the investment with at least some local debt or equity. 
C) There may be advantages other than a reduction in political risk that encourage MNCs to finance foreign subsidiaries with local money. 
D) All of the above 
A) Using local financing can reduce political risk. 
B) A MNC that finances a foreign investment with home-country equity faces greater risk of expropriation than if it had financed the investment with at least some local debt or equity. 
C) There may be advantages other than a reduction in political risk that encourage MNCs to finance foreign subsidiaries with local money. 
D) All of the above

Question 11

In the real world,does the cost of capital differ among countries?

Accepted Answer

A) Yes 
B) No 
C) None of the above 
A) Yes 
B) No 
C) None of the above

Question 12

Using the notation of the text,the CAPM states:

Accepted Answer

A)    
B)    
C)    
D) None of the above 
A)    
B)    
C)    
D) None of the above

Question 13

Suppose that the British stock market is integrated with the rest of the world and Stansfield Company has made its shares tradable internationally via cross-listing on the NYSE.Using the CAPM and a risk-free rate of 5%,estimate the equity cost of capital for Stansfield.

Accepted Answer

A) 12% 
B) 10.60% 
C) 6.60% 
D) None of the above 
A) 12% 
B) 10.60% 
C) 6.60% 
D) None of the above

Question 14

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

Accepted Answer

A) The weighted average cost of capital for a levered firm is K 
B) The tax rate is $\tau$ 
C) The after-tax cost of debt capital is i 
D) All of the above 
A) The weighted average cost of capital for a levered firm is K 
B) The tax rate is $\tau$ 
C) The after-tax cost of debt capital is i 
D) All of the above

Question 15

Find the weighted average cost of capital for a firm that has a debt-to-equity ratio of 1½,a tax rate of 34%,a levered cost of equity of 12% and an after-tax cost of debt of 8%.

Accepted Answer

A) 9.6% 
B) 7.968% 
C) 14% 
D) none of the above 
A) 9.6% 
B) 7.968% 
C) 14% 
D) none of the above

Question 16

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 17

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 18

Suppose that the British stock market is segmented from the rest of the world.Using the CAPM and a risk-free rate of 5%,estimate the equity cost of capital for Stansfield.

Accepted Answer

A) 14% 
B) 12% 
C) 9% 
D) None of the above 
A) 14% 
B) 12% 
C) 9% 
D) None of the above

Question 19

Solve for the weighted average cost of capital:

Accepted Answer

A) 7.00% 
B) 6.89% 
C) 6.73% 
D) 6.67% 
E) 6.57% 
A) 7.00% 
B) 6.89% 
C) 6.73% 
D) 6.67% 
E) 6.57%

Question 20

Micro Spinoffs,Inc.,issued 20-year debt one year ago today at par value with a coupon rate of 9 percent,paid annually.Today,the debt is selling at $1,050.If the firm's tax rate is 34%,what is its after-tax cost of debt?

Accepted Answer

A) 9% 
B) 8.46% 
C) 5.94% 
D) 5.58% 
E) None of the above 
A) 9% 
B) 8.46% 
C) 5.94% 
D) 5.58% 
E) None of the above

Exam 17: International Capital Structure and the Cost of Capital

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 3.

Solve for the weighted average cost of capital:

For a firm confronted with a fixed schedule of possible new investments,any policy that lowers the firm's cost of capital will increase the profitable capital expenditures the firm takes on and increase the wealth of the firm's shareholders.One such policy is

Solve for the weighted average cost of capital:

Assume that XYZ Corporation is a leveraged company with the following information: If XYZ's debt-to-total-market-value ratio is 40%,then its weighted average cost of capital,K,is:

Find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of ¾.

Find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of ⅔.

When the choice of financing a foreign subsidiary is between external debt and equity financing

Recent studies suggest that agency costs of managerial discretion are lower in Japan than in the United States.This suggests that

With regard to the financial structure of a foreign subsidiary

In the real world,does the cost of capital differ among countries?

Using the notation of the text,the CAPM states:

Suppose that the British stock market is integrated with the rest of the world and Stansfield Company has made its shares tradable internationally via cross-listing on the NYSE.Using the CAPM and a risk-free rate of 5%,estimate the equity cost of capital for Stansfield.

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

Find the weighted average cost of capital for a firm that has a debt-to-equity ratio of 1½,a tax rate of 34%,a levered cost of equity of 12% and an after-tax cost of debt of 8%.

Solve for the weighted average cost of capital:

Solve for the weighted average cost of capital:

Suppose that the British stock market is segmented from the rest of the world.Using the CAPM and a risk-free rate of 5%,estimate the equity cost of capital for Stansfield.

Solve for the weighted average cost of capital:

Micro Spinoffs,Inc.,issued 20-year debt one year ago today at par value with a coupon rate of 9 percent,paid annually.Today,the debt is selling at $1,050.If the firm's tax rate is 34%,what is its after-tax cost of debt?

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?