Question 1

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 C

Question 2

Solve for the weighted average cost of capital: $$\begin{aligned}
11.80 \% & = K _ { l } \
3 / 5 & = \lambda \
8.0 \% & = i \
40.0 \% & = \tau
\end{aligned}$$

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% C

Question 3

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 A

Question 4

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 5

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 6

In the notation of the book,K = (1 - $\lambda$)Kl + $\lambda$ (1 - $\lambda$)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 $\lambda$ 
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 $\lambda$ 
C) The after-tax cost of debt capital is i 
D) All of the above

Question 7

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 8

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

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 9

Solve for the weighted average cost of capital: $$\begin{aligned}
13.60 \% & = K _ { l } \
3 / 4 & = \lambda \
8.0 \% & = i \
40.0 \% & = \tau
\end{aligned}$$

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 10

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

Question 11

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

Accepted Answer

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

Question 12

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

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

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 14

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

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 15

Solve for the weighted average cost of capital: $17.20 \% \quad K _ { l } =$ cost of equity capital for a leveraged firm
$6 / 7 \lambda =$ debt-to-total-market-value ratio
$8.0 \% \quad i =$ before-tax borrowing cost
$40.0 \% \quad \tau =$ marginal corporate income tax rate

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

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 17

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%

Question 18

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 19

Assume that XYZ Corporation is a levered company with the following information: $$\begin{array} { l } 
K _ { l } = \text { cost of levered equity capital for } \mathrm { XYZ } = 13 \% \
i = \text { before-tax borrowing cost } = 8 \% \
t = \text { marginal corporate income tax rate } = 30 \%
\end{array}$$ 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 20

Benetton,an Italian clothier,is listed on the New York Stock Exchange.

Accepted Answer

A) This decision provides their shareholders with a higher degree of protection than is available in Italy. 
B) This decision can be a signal of the company's commitment to shareholder rights. 
C) This may make investors both in Italy and abroad more willing to provide capital and to increase the value of the pre-existing shares. 
D) All of the above 
A) This decision provides their shareholders with a higher degree of protection than is available in Italy. 
B) This decision can be a signal of the company's commitment to shareholder rights. 
C) This may make investors both in Italy and abroad more willing to provide capital and to increase the value of the pre-existing shares. 
D) All of the above

Exam 17: International Capital Structure and the Cost of Capital

A value-maximizing firms would

Solve for the weighted average cost of capital: 11.80\% = 3/5 =\lambda 8.0\% =i 40.0\% =\tau

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

Systematic risk refers to

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%.

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

The Nestlé episode shows

Solve for the weighted average cost of capital: 13.60\% = 3/4 =\lambda 8.0\% =i 40.0\% =\tau

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\lambdaλ )Kl + λ\lambdaλ (1 - λ\lambdaλ )i Which of these are correct?

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

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

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

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 graph,

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

Benetton,an Italian clothier,is listed on the New York Stock Exchange.

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 - $\lambda$ )i Which of the following are correct?

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