Question 1

The formula for beta is:

Accepted Answer

A)  $\beta _ { i } = \frac { \bar { R } _ { i } - R _ { f } } { \left( \bar { R } _ { m } - R _ { f } \right) }$ 
B)  $\beta _ { i } = \frac { \rho _ { R _ { i } , R _ { M S } } } { \sigma _ { R _ { M } } ^ { 2 } }$ 
C)  $\beta _ { i } = \frac { \operatorname { Cov } \left( R _ { i } , R _ { M } \right) } { \operatorname { Var } \left( R _ { M } \right) }$ 
D)  $\beta _ { i } = \frac { \operatorname { Corr } \left( R _ { i } , R _ { M } \right) } { \operatorname { Var } \left( R _ { M } \right) }$ 
A)  $\beta _ { i } = \frac { \bar { R } _ { i } - R _ { f } } { \left( \bar { R } _ { m } - R _ { f } \right) }$ 
B)  $\beta _ { i } = \frac { \rho _ { R _ { i } , R _ { M S } } } { \sigma _ { R _ { M } } ^ { 2 } }$ 
C)  $\beta _ { i } = \frac { \operatorname { Cov } \left( R _ { i } , R _ { M } \right) } { \operatorname { Var } \left( R _ { M } \right) }$ 
D)  $\beta _ { i } = \frac { \operatorname { Corr } \left( R _ { i } , R _ { M } \right) } { \operatorname { Var } \left( R _ { M } \right) }$

Question 2

One likely effect of a company or government instituting foreign equity ownership restrictions is

Accepted Answer

A) a decrease in domestic stock prices. 
B) an increase in domestic stock prices. 
C) a transfer of wealth from international shareholders to domestic shareholders. 
D) none of the above 
A) a decrease in domestic stock prices. 
B) an increase in domestic stock prices. 
C) a transfer of wealth from international shareholders to domestic shareholders. 
D) none of the above

Question 3

In the notation of the book,K = (1 - $\lambda$)Kl + $\lambda$ (1 - $\lambda$)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 4

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 5

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 2.

Accepted Answer

A) ⅓ 
B) ½ 
C) 3/5 
D) ⅔ 
E) 5/7 
A) ⅓ 
B) ½ 
C) 3/5 
D) ⅔ 
E) 5/7

Question 6

The majority of publicly traded Swiss corporations have up to three classes of common stock: 1)Registered stock
2)Voting bearer stock
3)Nonvoting bearer stock
Until recently,foreigners were not allowed to buy registered stocks: in the case of Nestlé this had the effect of

Accepted Answer

A) distorting the prices of registered stock downward. 
B) distorting the prices of registered stock upward. 
C) this had no effect on prices. 
D) none of the above 
A) distorting the prices of registered stock downward. 
B) distorting the prices of registered stock upward. 
C) this had no effect on prices. 
D) none of the above

Question 7

Solve for the weighted average cost of capital: $$\begin{aligned}
12.40 \% & = K _ { l } \
2 / 3 & = \lambda \
8.0 \% & = i \
40.0 \% & = \tau
\end{aligned}$$

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%

Question 8

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 9

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

Question 10

For a firm that has both debt and equity in its capital structure,its financing cost can be represented by the weighted average cost of capital that is computed by

Accepted Answer

A) weighing the pre-tax borrowing cost of the firm and the cost of equity capital, using the debt as the weight. 
B) weighing the after-tax borrowing cost of the firm and the cost of equity capital, using the debt as the weight. 
C) K = (1 - $\lambda$)Kl + $\lambda$ (1 - $\lambda$)i where: $K =$ weighted average cost of capital
$K _ { l } =$ cost of equity capital for a leveraged firm
$i =$ before-tax borrowing cost
$\tau =$ marginal corporate income tax rate
$\lambda \quad =$ debt-to-total-market-value ratio 
D) b and c 
A) weighing the pre-tax borrowing cost of the firm and the cost of equity capital, using the debt as the weight. 
B) weighing the after-tax borrowing cost of the firm and the cost of equity capital, using the debt as the weight. 
C) K = (1 - $\lambda$)Kl + $\lambda$ (1 - $\lambda$)i where: $K =$ weighted average cost of capital
$K _ { l } =$ cost of equity capital for a leveraged firm
$i =$ before-tax borrowing cost
$\tau =$ marginal corporate income tax rate
$\lambda \quad =$ debt-to-total-market-value ratio 
D) b and c

Question 11

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 12

Studies suggest that international capital markets are not segmented anymore

Accepted Answer

A) and are therefore fully integrated. 
B) but are not as yet fully integrated. 
C) so cross-listing of shares will not lower a firm's cost of capital. 
D) none of the above 
A) and are therefore fully integrated. 
B) but are not as yet fully integrated. 
C) so cross-listing of shares will not lower a firm's cost of capital. 
D) none of the above

Question 13

The required return on equity for an all-equity firm is 10.0%.They currently have a beta of one and the risk-free rate is 5% and the market risk premium is 5%.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 beta if this firm changes capital structure.

Accepted Answer

A) 1.12 
B) 1 
C) 7.4% 
D) None of the above 
A) 1.12 
B) 1 
C) 7.4% 
D) None of the above

Question 14

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

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

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 17

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 18

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 19

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

Question 20

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

The formula for beta is:

One likely effect of a company or government instituting foreign equity ownership restrictions is

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

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

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 2.

The majority of publicly traded Swiss corporations have up to three classes of common stock: 1)Registered stock 2)Voting bearer stock 3)Nonvoting bearer stock Until recently,foreigners were not allowed to buy registered stocks: in the case of Nestlé this had the effect of

Solve for the weighted average cost of capital: 12.40\% = 2/3 =\lambda 8.0\% =i 40.0\% =\tau

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 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.

For a firm that has both debt and equity in its capital structure,its financing cost can be represented by the weighted average cost of capital that is computed by

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

Studies suggest that international capital markets are not segmented anymore

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

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

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.

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

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?

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

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

The formula for beta is:

One likely effect of a company or government instituting foreign equity ownership restrictions is

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

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

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 2.

The majority of publicly traded Swiss corporations have up to three classes of common stock: 1)Registered stock 2)Voting bearer stock 3)Nonvoting bearer stock Until recently,foreigners were not allowed to buy registered stocks: in the case of Nestlé this had the effect of

Solve for the weighted average cost of capital: 12.40\% = 2/3 =\lambda 8.0\% =i 40.0\% =\tau

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 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.

For a firm that has both debt and equity in its capital structure,its financing cost can be represented by the weighted average cost of capital that is computed by

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

Studies suggest that international capital markets are not segmented anymore

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

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

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.

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

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?

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

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?