Question 1

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

Question 2

Solve for the weighted average cost of capital. $\begin{aligned}
11.20 \% &=K_{1} \
1 / 2 &=\lambda \
8.0 \% &=i \
40.0 \% 0 &=\tau
\end{aligned}$

Accepted Answer

A) 8.67 percent 
B) 8.00 percent 
C) 7.60 percent 
D) 7.33 percent 
A) 8.67 percent 
B) 8.00 percent 
C) 7.60 percent 
D) 7.33 percent B

Question 3

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 options 
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 options D

Question 4

Solve for the weighted average cost of capital. $\begin{array}{lcl}
11.80 \%&=&K_{1}&=&\text { cost of equity capital for a leveraged firm }\
3 / 5&=&\lambda&=&\text { debt-to-total-market-value ratio }\
8.0 \%&=&i&=&\text { before-tax borrowing cost }\
40.0 \%&=&\tau&=&\text { marginal corporate income tax rate }
\end{array}$

Accepted Answer

A) 8.67 percent 
B) 8.00 percent 
C) 7.60 percent 
D) 7.33 percent 
A) 8.67 percent 
B) 8.00 percent 
C) 7.60 percent 
D) 7.33 percent

Question 5

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

Accepted Answer

A) 9.6 percent 
B) 7.968 percent 
C) 14 percent 
D) none of the options 
A) 9.6 percent 
B) 7.968 percent 
C) 14 percent 
D) none of the options

Question 6

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 7

In the notation of the book,K = (1 − λ)Kl + λ(1 − τ)i ; which of the following is correct?

Accepted Answer

A) The debt-to-equity ratio is λ 
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 options 
A) The debt-to-equity ratio is λ 
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 options

Question 8

Assume that XYZ Corporation is a leveraged company with the following information: Kl = cost of equity capital for XYZ = 13 percent
I = before-tax borrowing cost = 8 percent
T = marginal corporate income tax rate = 30 percent
If XYZ's debt-to-total-market-value ratio is 40 percent,then its weighted average cost of capital,K,is:

Accepted Answer

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

Question 9

Solve for the weighted average cost of capital. $\begin{array}{lcl}
13.60 \%&=&K_{1}&=&\text { cost of equity capital for a leveraged firm }\
3 / 4&=&\lambda&=&\text { debt-to-total-market-value ratio }\
8.0 \%&=&i&=&\text { before-tax borrowing cost }\
40.0 \%&=&\tau&=&\text { marginal corporate income tax rate }
\end{array}$

Accepted Answer

A) 7.00 percent 
B) 6.89 percent 
C) 6.73 percent 
D) 6.67 percent 
A) 7.00 percent 
B) 6.89 percent 
C) 6.73 percent 
D) 6.67 percent

Question 10

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

Accepted Answer

A) 1/3 
B) 2/5 
C) 3/2 
D) none of the options 
A) 1/3 
B) 2/5 
C) 3/2 
D) none of the options

Question 11

Solve for the weighted average cost of capital. $\begin{array}{lcl}
13.00 \%&=&K_{1}&=&\text { cost of equity capital for a leveraged firm }\
5 / 7&=&\lambda&=&\text { debt-to-total-market-value ratio }\
8.0 \%&=&i&=&\text { before-tax borrowing cost }\
40.0 \%&=&\tau&=&\text { marginal corporate income tax rate }
\end{array}$

Accepted Answer

A) 8.67 percent 
B) 7.60 percent 
C) 7.33 percent 
D) 7.14 percent 
A) 8.67 percent 
B) 7.60 percent 
C) 7.33 percent 
D) 7.14 percent

Question 12

A recent study of MNCs suggests that when a foreign subsidiary's obligations cannot be met with locally generated revenues,

Accepted Answer

A) parent firms bail out their subsidiaries regardless of circumstances. 
B) that parent firms routinely allow subsidiaries to default. 
C) most subsidiaries are financed almost entirely with banker's acceptances. 
D) none of the options 
A) parent firms bail out their subsidiaries regardless of circumstances. 
B) that parent firms routinely allow subsidiaries to default. 
C) most subsidiaries are financed almost entirely with banker's acceptances. 
D) none of the options

Question 13

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 ( $\bar { R } _ { M }$ - $R _{f}$ ) 
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 ( $\bar { R } _ { M }$ - $R _{f}$ )

Question 14

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 percent,estimate the equity cost of capital for Stansfield. Correlation Coefficients
Stansfield England World SD(%) $\mathcal { R }$ %
$$\begin{array} { l c c l c c } 
\text { Stansfield } & 1.00 & 0.90 & 0.60 & 20 & ? \
\text { England } & & 1.00 & 0.80 & 18 & 14 \
\text { World } & & & 1.00 & 15 & 12
\end{array}$$

Accepted Answer

A) 12 percent 
B) 10.60 percent 
C) 6.60 percent 
D) None of the options 
A) 12 percent 
B) 10.60 percent 
C) 6.60 percent 
D) None of the options

Question 15

To maximize the benefits of partial integration of capital markets

Accepted Answer

A) a country should choose to internationally cross-list those assets that are least correlated with the domestic market portfolio. 
B) a country should choose to internationally cross-list those assets that are most highly correlated with the domestic market portfolio. 
C) a country should choose to internationally cross-list those assets that are uncorrelated with the domestic market portfolio. 
D) none of the options 
A) a country should choose to internationally cross-list those assets that are least correlated with the domestic market portfolio. 
B) a country should choose to internationally cross-list those assets that are most highly correlated with the domestic market portfolio. 
C) a country should choose to internationally cross-list those assets that are uncorrelated with the domestic market portfolio. 
D) none of the options

Question 16

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 options 
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 options

Question 17

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

Question 18

In the notation of the book,K = (1 − λ)KS1U1B1lS1U1B0 + λ(1 − τ)i ; which of the following is correct?

Accepted Answer

A) The debt-to-equity ratio is λ 
B) The cost of equity capital for a levered firm is KS1U1B1lS1U1B0 S1U1B1 
C) The after-tax cost of debt capital is i 
D) all of the options 
A) The debt-to-equity ratio is λ 
B) The cost of equity capital for a levered firm is KS1U1B1lS1U1B0 S1U1B1 
C) The after-tax cost of debt capital is i 
D) all of the options

Question 19

Solve for the weighted average cost of capital. $\begin{array}{lcl}
15.40 \%&=&K_{1}&=&\text { cost of equity capital for a leveraged firm }\
9 / 11&=&\lambda&=&\text { debt-to-total-market-value ratio }\
8.0 \%&=&i&=&\text { before-tax borrowing cost }\
40.0 \%&=&\tau&=&\text { marginal corporate income tax rate }
\end{array}$

Accepted Answer

A) 7.00 percent 
B) 6.89 percent 
C) 6.73 percent 
D) 6.67 percent 
A) 7.00 percent 
B) 6.89 percent 
C) 6.73 percent 
D) 6.67 percent

Question 20

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 
A) 1/3 
B) 2/5 
C) 3/2 
D) 2/3

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

Solve for the weighted average cost of capital. 11.20\% = 1/2 =\lambda 8.0\% =i 40.0\%0 =\tau

The Nestlé episode shows

Solve for the weighted average cost of capital. 11.80\% = = cost of equity capital for a leveraged firm 3/5 = \lambda = debt-to-total-market-value ratio 8.0\% = i = before-tax borrowing cost 40.0\% = \tau = marginal corporate income tax rate

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

In the notation of the book,K = (1 − λ)K_l + λ(1 − τ)i ; which of the following is correct?

Solve for the weighted average cost of capital. 13.60\% = = cost of equity capital for a leveraged firm 3/4 = \lambda = debt-to-total-market-value ratio 8.0\% = i = before-tax borrowing cost 40.0\% = \tau = marginal corporate income tax rate

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

Solve for the weighted average cost of capital. 13.00\% = = cost of equity capital for a leveraged firm 5/7 = \lambda = debt-to-total-market-value ratio 8.0\% = i = before-tax borrowing cost 40.0\% = \tau = marginal corporate income tax rate

A recent study of MNCs suggests that when a foreign subsidiary's obligations cannot be met with locally generated revenues,

The market risk premium

To maximize the benefits of partial integration of capital markets

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

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

In the notation of the book,K = (1 − λ)K_l + λ(1 − τ)i ; which of the following is correct?

Solve for the weighted average cost of capital. 15.40\% = = cost of equity capital for a leveraged firm 9/11 = \lambda = debt-to-total-market-value ratio 8.0\% = i = before-tax borrowing cost 40.0\% = \tau = marginal corporate income tax rate

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

International Monetary System

Globalization and the Multinational Firm

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

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

Solve for the weighted average cost of capital. 11.20\% = 1/2 =\lambda 8.0\% =i 40.0\%0 =\tau

The Nestlé episode shows

Solve for the weighted average cost of capital. 11.80\% = = cost of equity capital for a leveraged firm 3/5 = \lambda = debt-to-total-market-value ratio 8.0\% = i = before-tax borrowing cost 40.0\% = \tau = marginal corporate income tax rate

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

In the notation of the book,K = (1 − λ)Kl + λ(1 − τ)i ; which of the following is correct?

Solve for the weighted average cost of capital. 13.60\% = = cost of equity capital for a leveraged firm 3/4 = \lambda = debt-to-total-market-value ratio 8.0\% = i = before-tax borrowing cost 40.0\% = \tau = marginal corporate income tax rate

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

Solve for the weighted average cost of capital. 13.00\% = = cost of equity capital for a leveraged firm 5/7 = \lambda = debt-to-total-market-value ratio 8.0\% = i = before-tax borrowing cost 40.0\% = \tau = marginal corporate income tax rate

A recent study of MNCs suggests that when a foreign subsidiary's obligations cannot be met with locally generated revenues,

The market risk premium

To maximize the benefits of partial integration of capital markets

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

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

In the notation of the book,K = (1 − λ)Kl + λ(1 − τ)i ; which of the following is correct?

Solve for the weighted average cost of capital. 15.40\% = = cost of equity capital for a leveraged firm 9/11 = \lambda = debt-to-total-market-value ratio 8.0\% = i = before-tax borrowing cost 40.0\% = \tau = marginal corporate income tax rate

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

International Monetary System

Globalization and the Multinational Firm

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 − λ)K_l + λ(1 − τ)i ; which of the following is correct?

In the notation of the book,K = (1 − λ)K_l + λ(1 − τ)i ; which of the following is correct?