Question 1

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

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

The cost of equity capital is

Accepted Answer

A) the expected return on the firm's stock that investors require. 
B) frequently estimated by using the Capital Asset Pricing Model (CAPM). 
C) generally considered to be a linear function of the systematic risk inherent in the security. 
D) all of the above 
A) the expected return on the firm's stock that investors require. 
B) frequently estimated by using the Capital Asset Pricing Model (CAPM). 
C) generally considered to be a linear function of the systematic risk inherent in the security. 
D) all of the above

Question 3

The firm's tax rate is 34%.The firm's pre-tax cost of debt is 8%; the firm's debt-to-equity ratio is 4; the risk-free rate is 3%; the beta of the firm's common stock is 1.5; the market risk premium is 9%.Calculate the weighted average cost of capital.

Accepted Answer

A) 33.33% 
B) 8.09% 
C) 9.02% 
D) 16.5% 
E) None of the above 
A) 33.33% 
B) 8.09% 
C) 9.02% 
D) 16.5% 
E) None of the above

Question 4

Assume that XYZ Corporation is a levered 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 5

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 3½.

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 6

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 4 ½.

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 7

One explanation for foreign equity ownership restrictions

Accepted Answer

A) is to make it difficult or impossible for foreigners to gain control of a domestic company. 
B) is to expropriate wealth from domestic shareholders. 
C) is the arguments in favor of free trade. 
D) none of the above 
A) is to make it difficult or impossible for foreigners to gain control of a domestic company. 
B) is to expropriate wealth from domestic shareholders. 
C) is the arguments in favor of free trade. 
D) none of the above

Question 8

The Nestlé episode shows

Accepted Answer

A) that political risk can exist in a country like Switzerland, long considered a haven from such risk. 
B) the pricing to market phenomenon exists. 
C) it is possible to expropriate wealth from one group of shareholders and transfer it to another group. 
D) all of the above 
A) that political risk can exist in a country like Switzerland, long considered a haven from such risk. 
B) the pricing to market phenomenon exists. 
C) it is possible to expropriate wealth from one group of shareholders and transfer it to another group. 
D) all of the above

Question 9

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-total market value ratio is $\lambda$ 
B) The tax rate is i 
C) The after-tax cost of debt capital is i 
D) All of the above 
A) The debt-to-total market value ratio is $\lambda$ 
B) The tax rate is i 
C) The after-tax cost of debt capital is i 
D) All of the above

Question 10

The Pricing-to-Market phenomenon

Accepted Answer

A) describes the potential effect of foreign equity ownership restrictions. 
B) describes the premium or discount faced by foreign shareholders relative to domestic investors in the price of a stock due to legal restrictions imposed on foreign equity ownership. 
C) was evidenced in the relative prices of Nestlé shares prior to November 17, 1988. 
D) all of the above 
A) describes the potential effect of foreign equity ownership restrictions. 
B) describes the premium or discount faced by foreign shareholders relative to domestic investors in the price of a stock due to legal restrictions imposed on foreign equity ownership. 
C) was evidenced in the relative prices of Nestlé shares prior to November 17, 1988. 
D) all of the above

Question 11

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 12

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 13

The common stock of Kansas City Power and Light has a beta of 0.80.The Treasury bill rate is 4 percent and the market risk premium is 8 percent.KCP&L is in the 34% tax bracket.What is their cost of equity capital?

Accepted Answer

A) 12.0% 
B) 10.4% 
C) 7.20% 
D) 6.4% 
E) 8.22% 
A) 12.0% 
B) 10.4% 
C) 7.20% 
D) 6.4% 
E) 8.22%

Question 14

With regard to the financial structure of a foreign subsidiary

Accepted Answer

A) one option is to conform to the parent company's capital structure. 
B) one option is to conform to the local norm of the country where the subsidiary operates. 
C) one option is to vary judiciously to capitalize on opportunities to lower taxes, reduce financing costs and risks, and take advantage of market imperfections. 
D) all of the above 
A) one option is to conform to the parent company's capital structure. 
B) one option is to conform to the local norm of the country where the subsidiary operates. 
C) one option is to vary judiciously to capitalize on opportunities to lower taxes, reduce financing costs and risks, and take advantage of market imperfections. 
D) all of the above

Question 15

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 16

Compute the domestic country beta of Stansfield Bicycles as well as its world beta.

Accepted Answer

A) 1.00 and 0.80 respectively 
B) 0.80 and 0.00 respectively 
C) 4.50 and 4.00 respectively 
D) None of the above 
A) 1.00 and 0.80 respectively 
B) 0.80 and 0.00 respectively 
C) 4.50 and 4.00 respectively 
D) None of the above

Question 17

The formula for beta is:

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 18

The required return on equity for a levered firm is 10.60%.The debt to equity ratio is ½ the tax rate is 40%,the pre-tax cost of debt is 8%.Find the cost of capital if this firm were financed entirely with equity.

Accepted Answer

A) 10% 
B) 12% 
C) 8.67% 
D) None of the above 
A) 10% 
B) 12% 
C) 8.67% 
D) None of the above

Question 19

The market risk premium

Accepted Answer

A) can be defined by the difference between the expected market return and the risk-free rate. 
B) is the reward for bearing nondiversifiable risk. 
C) is the slope of the security market line. 
D) can be expressed as   . 
E) all of the above are correct. 
A) can be defined by the difference between the expected market return and the risk-free rate. 
B) is the reward for bearing nondiversifiable risk. 
C) is the slope of the security market line. 
D) can be expressed as   . 
E) all of the above are correct.

Question 20

The required return on equity for an all-equity firm is 10.0%.They are considering a change in capital structure to a debt-to-equity ratio of ½ the tax rate is 40%,the pre-tax cost of debt is 8%.Find the new cost of capital if this firm changes capital structure.

Accepted Answer

A) 14.93% 
B) 8.67% 
C) 7.40% 
D) None of the above 
A) 14.93% 
B) 8.67% 
C) 7.40% 
D) 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 5.

The cost of equity capital is

The firm's tax rate is 34%.The firm's pre-tax cost of debt is 8%; the firm's debt-to-equity ratio is 4; the risk-free rate is 3%; the beta of the firm's common stock is 1.5; the market risk premium is 9%.Calculate the weighted average cost of capital.

Assume that XYZ Corporation is a levered 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-value ratio for a firm with a debt-to-equity ratio of 3½.

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 4 ½.

One explanation for foreign equity ownership restrictions

The Nestlé episode shows

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

The Pricing-to-Market phenomenon

Solve for the weighted average cost of capital:

Solve for the weighted average cost of capital:

The common stock of Kansas City Power and Light has a beta of 0.80.The Treasury bill rate is 4 percent and the market risk premium is 8 percent.KCP&L is in the 34% tax bracket.What is their cost of equity capital?

With regard to the financial structure of a foreign subsidiary

Solve for the weighted average cost of capital:

Compute the domestic country beta of Stansfield Bicycles as well as its world beta.

The formula for beta is:

The required return on equity for a levered firm is 10.60%.The debt to equity ratio is ½ the tax rate is 40%,the pre-tax cost of debt is 8%.Find the cost of capital if this firm were financed entirely with equity.

The market risk premium

The required return on equity for an all-equity firm is 10.0%.They are considering a change in capital structure to a debt-to-equity ratio of ½ the tax rate is 40%,the pre-tax cost of debt is 8%.Find the new cost of capital if this firm changes capital structure.

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?