Question 1

Solve for the weighted average cost of capital: $$\begin{aligned}
13.00 \% & = K _ { l } \
5 / 7 & = \lambda \
8.0 \% & = i \
40.0 \% & = \tau
\end{aligned}$$

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 2

Using the notation of the text,the CAPM states:

Accepted Answer

A)  $$\bar { R } _ { i } = R _ { f } + \beta _ { i } \left( \bar { R } _ { M } - R _ { f } \right) ( 1 - \tau )$$ 
B)  $$\bar { R } _ { i } = \lambda R _ { f } + \beta _ { i } \left( \bar { R } _ { M } - R _ { f } \right) ( 1 - \lambda )$$ 
C)  $$\bar { R } _ { i } = R _ { f } + \beta _ { i } \left( \bar { R } _ { M } - R _ { f } \right)$$ 
D) None of the above 
A)  $$\bar { R } _ { i } = R _ { f } + \beta _ { i } \left( \bar { R } _ { M } - R _ { f } \right) ( 1 - \tau )$$ 
B)  $$\bar { R } _ { i } = \lambda R _ { f } + \beta _ { i } \left( \bar { R } _ { M } - R _ { f } \right) ( 1 - \lambda )$$ 
C)  $$\bar { R } _ { i } = R _ { f } + \beta _ { i } \left( \bar { R } _ { M } - R _ { f } \right)$$ 
D) None of the above

Question 3

Solve for the weighted average cost of capital: $11.20 \% \quad K _ { l } =$ cost of equity capital for a leveraged firm
$1 / 2 \lambda =$ 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 4

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-equity ratio is $\lambda$ 
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 above 
A) The debt-to-equity ratio is $\lambda$ 
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 above

Question 5

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-equity ratio is $\lambda$ 
B) The cost of equity capital for a levered firm is Kl 
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 cost of equity capital for a levered firm is Kl 
C) The after-tax cost of debt capital is i 
D) All of the above

Question 6

Solve for the weighted average cost of capital: $$\begin{aligned}
14.20 \% & = K _ { l } \
7 / 9 & = \lambda \
8.0 \% & = i \
40.0 \% & = \tau
\end{aligned}$$

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 7

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

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 9

Solve for the weighted average cost of capital: $11.80 \% K _ { l } =$ cost of equity capital for a leveraged firm
$3 / 5 \lambda =$ 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 10

With regard to the financial structure of a foreign subsidiary

Accepted Answer

A) Using local financing can reduce political risk. 
B) A MNC that finances a foreign investment with home-country equity faces greater risk of expropriation than if it had financed the investment with at least some local debt or equity. 
C) There may be advantages other than a reduction in political risk that encourage MNCs to finance foreign subsidiaries with local money. 
D) All of the above 
A) Using local financing can reduce political risk. 
B) A MNC that finances a foreign investment with home-country equity faces greater risk of expropriation than if it had financed the investment with at least some local debt or equity. 
C) There may be advantages other than a reduction in political risk that encourage MNCs to finance foreign subsidiaries with local money. 
D) All of the above

Question 11

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 12

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 1.

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 13

Companies domiciled in countries with weak investor protection can reduce agency costs between shareholders and management

Accepted Answer

A) by moving to a better county. 
B) by listing their stocks in countries with strong investor protection. 
C) by voluntarily complying with the provisions of the U.S.Sarbanes-Oxley Act. 
D) having a press conference and promising to be nice to their investors. 
A) by moving to a better county. 
B) by listing their stocks in countries with strong investor protection. 
C) by voluntarily complying with the provisions of the U.S.Sarbanes-Oxley Act. 
D) having a press conference and promising to be nice to their investors.

Question 14

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 $\bar { R } _ { M } - R _ { f }$ . 
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 $\bar { R } _ { M } - R _ { f }$ . 
E) all of the above are correct.

Question 15

For most countries and most firms,the domestic country beta

Accepted Answer

A) can be no lower than its world beta. 
B) is normally much smaller than the world beta. 
C) is normally much much higher than the world beta. 
D) is exactly equal to the world beta. 
A) can be no lower than its world beta. 
B) is normally much smaller than the world beta. 
C) is normally much much higher than the world beta. 
D) is exactly equal to the world beta.

Question 16

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 17

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 3.

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 18

Solve for the weighted average cost of capital: $$\begin{aligned}
15.40 \% & = K _ { l } \
9 / 11 & = \lambda \
8.0 \% & = i \
40.0 \% & = \tau
\end{aligned}$$

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 19

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

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 20

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 1½.

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

Solve for the weighted average cost of capital: 13.00\% = 5/7 =\lambda 8.0\% =i 40.0\% =\tau

Using the notation of the text,the CAPM states:

Solve for the weighted average cost of capital: $11.20 \% \quad K _ { l } =$ cost of equity capital for a leveraged firm $1 / 2 \lambda =$ debt-to-total-market-value ratio $8.0 \% \quad i =$ before-tax borrowing cost $40.0 \% \quad \tau =$ marginal corporate income tax rate

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 the following are correct?

Solve for the weighted average cost of capital: 14.20\% = 7/9 =\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 1½,a tax rate of 34%,a levered cost of equity of 12% and a pre-tax cost of debt of 10%.

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

With regard to the financial structure of a foreign subsidiary

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

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 1.

Companies domiciled in countries with weak investor protection can reduce agency costs between shareholders and management

The market risk premium

For most countries and most firms,the domestic country beta

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 3.

Solve for the weighted average cost of capital: 15.40\% = 9/11 =\lambda 8.0\% =i 40.0\% =\tau

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

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 1½.

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

Solve for the weighted average cost of capital: 13.00\% = 5/7 =\lambda 8.0\% =i 40.0\% =\tau

Using the notation of the text,the CAPM states:

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

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

Solve for the weighted average cost of capital: 14.20\% = 7/9 =\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 1½,a tax rate of 34%,a levered cost of equity of 12% and a pre-tax cost of debt of 10%.

With regard to the financial structure of a foreign subsidiary

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

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 1.

Companies domiciled in countries with weak investor protection can reduce agency costs between shareholders and management

The market risk premium

For most countries and most firms,the domestic country beta

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 3.

Solve for the weighted average cost of capital: 15.40\% = 9/11 =\lambda 8.0\% =i 40.0\% =\tau

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

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 1½.

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 the following are correct?