Question 1

In the graph,

Accepted Answer

A) Kl and Kg represent, respectively, the cost of capital under international and local capital structures; IRR represents the internal rate of return on investment projects; Il and Ig represent, respectively, the optimal investment outlays under the alternative capital structures. 
B) 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. 
C) None of the above 
A) Kl and Kg represent, respectively, the cost of capital under international and local capital structures; IRR represents the internal rate of return on investment projects; Il and Ig represent, respectively, the optimal investment outlays under the alternative capital structures. 
B) 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. 
C) None of the above

Question 2

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 3

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 4

When the parent company fully responsible for the subsidiary's obligations,

Accepted Answer

A) the independent financial structure of the subsidiary is irrelevant. 
B) potential creditors will examine the parent's overall financial condition, not the subsidiary's. 
C) the independent financial subsidiary can have the same capital structure as the parent. 
D) all of the above 
A) the independent financial structure of the subsidiary is irrelevant. 
B) potential creditors will examine the parent's overall financial condition, not the subsidiary's. 
C) the independent financial subsidiary can have the same capital structure as the parent. 
D) all of the above

Question 5

Compute the debt-to-total-value ratio for a firm that has a debt-to-equity ratio of 2.

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

Question 6

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 7

A value-maximizing firms would

Accepted Answer

A) undertake an investment project as long as the IRR exceeds the NPV. 
B) undertake an investment project as long as the IRR is less than the cost of capital. 
C) undertake an investment project as long as the IRR exceeds the cost of capital. 
D) none of the above 
A) undertake an investment project as long as the IRR exceeds the NPV. 
B) undertake an investment project as long as the IRR is less than the cost of capital. 
C) undertake an investment project as long as the IRR exceeds the cost of capital. 
D) none of the above

Question 8

A reduced cost of equity capital increases the firm's value

Accepted Answer

A) through revaluation of the firm's existing cash flows from existing projects. 
B) through increased investment as more projects become positive NPVs. 
C) both a) and b) 
D) none of the above 
A) through revaluation of the firm's existing cash flows from existing projects. 
B) through increased investment as more projects become positive NPVs. 
C) both a) and b) 
D) none of the above

Question 9

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 a pre-tax cost of debt of 10%.

Accepted Answer

A) 9.6% 
B) 7.968% 
C) 8.76% 
D) none of the above 
A) 9.6% 
B) 7.968% 
C) 8.76% 
D) none of the above

Question 10

Assume that XYZ Corporation is a leveraged company with the following information:   Calculate the debt-to-total-market-value ratio that would result in XYZ having a weighted average cost of capital of 9.3%.

Accepted Answer

A) 35% 
B) 40% 
C) 45% 
D) 50% 
A) 35% 
B) 40% 
C) 45% 
D) 50%

Question 11

A firm may cross-list its share to

Accepted Answer

A) establish a broader investor base for its stock. 
B) establish name recognition in foreign capital markets, thus paving the way for the firm to source new equity and debt capital from investors in different markets. 
C) expose the firm's name to a broader investor and consumer groups. 
D) all of the above 
A) establish a broader investor base for its stock. 
B) establish name recognition in foreign capital markets, thus paving the way for the firm to source new equity and debt capital from investors in different markets. 
C) expose the firm's name to a broader investor and consumer groups. 
D) all of the above

Question 12

The cost of capital is

Accepted Answer

A) the minimum rate of return an investment project must generate in order to pay its financing costs. 
B) the minimum rate of return an investment project must generate in order to pay its financing costs plus a reasonable profit. 
C) the maximum rate of return an investment project must generate in order to pay its financing costs. 
D) the maximum rate of return an investment project must generate in order to pay its financing costs plus a reasonable profit. 
A) the minimum rate of return an investment project must generate in order to pay its financing costs. 
B) the minimum rate of return an investment project must generate in order to pay its financing costs plus a reasonable profit. 
C) the maximum rate of return an investment project must generate in order to pay its financing costs. 
D) the maximum rate of return an investment project must generate in order to pay its financing costs plus a reasonable profit.

Question 13

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 an after-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 14

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%.What is the firm's cost of equity capital?

Accepted Answer

A) 33.33% 
B) 10.85% 
C) 13.12% 
D) 16.50% 
E) None of the above 
A) 33.33% 
B) 10.85% 
C) 13.12% 
D) 16.50% 
E) None of the above

Question 15

Corporations are becoming multinational not only in the scope of their business activities but also in their capital structure

Accepted Answer

A) by raising funds from domestic as well as government sources. 
B) by raising funds from foreign as well as domestic sources. 
C) this trend reflects not only a conscious effort on the part of firms to raise the cost of capital by international sourcing of funds but also the ongoing liberalization and deregulation of international financial markets that make them accessible for many firms. 
D) both b) and c) 
A) by raising funds from domestic as well as government sources. 
B) by raising funds from foreign as well as domestic sources. 
C) this trend reflects not only a conscious effort on the part of firms to raise the cost of capital by international sourcing of funds but also the ongoing liberalization and deregulation of international financial markets that make them accessible for many firms. 
D) both b) and c)

Question 16

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

Accepted Answer

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

Question 17

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

Accepted Answer

A) political risk considerations tend to favor the latter. 
B) political risk considerations tend to favor the former. 
C) political risk is separate from financial risk and so does not enter into a discussion of debt equity ratios. 
D) none of the above 
A) political risk considerations tend to favor the latter. 
B) political risk considerations tend to favor the former. 
C) political risk is separate from financial risk and so does not enter into a discussion of debt equity ratios. 
D) none of the above

Question 18

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 costs 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 19

Find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of 5/6.

Accepted Answer

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

In the graph,

Solve for the weighted average cost of capital:

Solve for the weighted average cost of capital:

When the parent company fully responsible for the subsidiary's obligations,

Compute the debt-to-total-value ratio for a firm that has a debt-to-equity ratio of 2.

Solve for the weighted average cost of capital:

A value-maximizing firms would

A reduced cost of equity capital increases the firm's value

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 a pre-tax cost of debt of 10%.

Assume that XYZ Corporation is a leveraged company with the following information: Calculate the debt-to-total-market-value ratio that would result in XYZ having a weighted average cost of capital of 9.3%.

A firm may cross-list its share to

The cost of capital is

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 an after-tax cost of debt of 9%.

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%.What is the firm's cost of equity capital?

Corporations are becoming multinational not only in the scope of their business activities but also in their capital structure

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

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

Find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of 5/6.

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

In the graph,

Solve for the weighted average cost of capital:

Solve for the weighted average cost of capital:

When the parent company fully responsible for the subsidiary's obligations,

Compute the debt-to-total-value ratio for a firm that has a debt-to-equity ratio of 2.

Solve for the weighted average cost of capital:

A value-maximizing firms would

A reduced cost of equity capital increases the firm's value

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 a pre-tax cost of debt of 10%.

Assume that XYZ Corporation is a leveraged company with the following information: Calculate the debt-to-total-market-value ratio that would result in XYZ having a weighted average cost of capital of 9.3%.

A firm may cross-list its share to

The cost of capital is

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 an after-tax cost of debt of 9%.

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%.What is the firm's cost of equity capital?

Corporations are becoming multinational not only in the scope of their business activities but also in their capital structure

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

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

Find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of 5/6.

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