Question 1

Solve for the weighted average cost of capital: $$\begin{aligned}
11.20 \% & = K _ { l } \
1 / 2 & = \lambda \
8.0 \% & = i \
40.0 \% & = \tau
\end{aligned}$$

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

Solve for the weighted average cost of capital: $$\begin{aligned}
17.20 \% & = K _ { l } \
6 / 7 & = \lambda \
8.0 \% & = i \
40.0 \% & = \tau
\end{aligned}$$

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 3

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 an after-tax cost of debt of 8%.

Accepted Answer

A) 9.6% 
B) 7.968% 
C) 14% 
D) none of the above 
A) 9.6% 
B) 7.968% 
C) 14% 
D) none of the above

Question 4

Solve for the weighted average cost of capital: $12.40 \% \quad K _ { l } =$ cost of equity capital for a leveraged firm
$2 / 3 \lambda =$ 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 5

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 benefits 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 6

Assume that XYZ Corporation is a leveraged company with the following information: $$\begin{array} { l } 
K _ { l } = \text { cost of equity capital for } \mathrm { XYZ } = 13 \% \
i = \text { before-tax borrowing cost } = 8 \% \
t = \text { marginal corporate income tax rate } = 30 \%
\end{array}$$ 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 7

The required return on equity for a levered firm is 10.60%.The debt to equity ratio is ½ the tax rate is 40%,the pre-tax cost of debt is 8%.Find the cost of capital if this firm were financed entirely with equity.

Accepted Answer

A) 10% 
B) 12% 
C) 8.67% 
D) None of the above 
A) 10% 
B) 12% 
C) 8.67% 
D) None of the above

Question 8

Find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of ⅔.

Accepted Answer

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

Question 9

With regard to the financial structure of a foreign subsidiary

Accepted Answer

A) one option is to conform to the parent company's capital structure. 
B) one option is to conform to the local norm of the country where the subsidiary operates. 
C) one option is to vary judiciously to capitalize on opportunities to lower taxes, reduce financing costs and risks, and take advantage of market imperfections. 
D) all of the above 
A) one option is to conform to the parent company's capital structure. 
B) one option is to conform to the local norm of the country where the subsidiary operates. 
C) one option is to vary judiciously to capitalize on opportunities to lower taxes, reduce financing costs and risks, and take advantage of market imperfections. 
D) all of the above

Question 10

Solve for the weighted average cost of capital: $16.00 \% \quad K _ { l } =$ cost of equity capital for a leveraged firm
$5 / 6 \lambda =$ 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 11

For a firm confronted with a fixed schedule of possible new investments,any policy that lowers the firm's cost of capital will increase the profitable capital expenditures the firm takes on and increase the wealth of the firm's shareholders.One such policy is

Accepted Answer

A) internationalizing the firm's capital budgeting opportunities. 
B) internationalizing the firm's cost of capital. 
C) investing in riskier projects financed with debt. 
D) none of the above 
A) internationalizing the firm's capital budgeting opportunities. 
B) internationalizing the firm's cost of capital. 
C) investing in riskier projects financed with debt. 
D) none of the above

Question 12

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

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

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 14

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

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

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 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

At the optimal capital structure,

Accepted Answer

A) K = (1 - $\lambda$)Kl + $\lambda$ (1 - $\tau$)i will be minimized. 
B) The debt-equity ratio will be equal to the debt-to-value ratio. 
C) K = (1 - $\lambda$)Kl + $\lambda$ (1 - $\tau$)i will be maximized. 
D) None of the above 
A) K = (1 - $\lambda$)Kl + $\lambda$ (1 - $\tau$)i will be minimized. 
B) The debt-equity ratio will be equal to the debt-to-value ratio. 
C) K = (1 - $\lambda$)Kl + $\lambda$ (1 - $\tau$)i will be maximized. 
D) None of the above

Question 18

Suppose the domestic U.S.beta of IBM is 1.0,that is $$\beta _ { \mathrm { IBM } } ^ { \mathrm { U } . \mathrm { S } } = 1.0$$ ,and that the expected return on the U.S.market portfolio is $\bar { R } _ { \text {U.S. } } = 12$ percent,and that the U.S.T-bill rate is 6 percent.If the world beta measure of IBM is $\beta _ { \mathrm { IBM } } ^ { \text {world } } = 0.80$ then we can say

Accepted Answer

A) That if the U.S.markets are fully integrated with the rest of the world, IBM's cost of equity capital would be 20% lower than if U.S.markets were segmented. 
B) That if the U.S.markets are fully integrated with the rest of the world, IBM's cost of equity capital would be 10% lower than if U.S.markets were segmented. 
C) That if the U.S.markets are fully integrated with the rest of the world, IBM's cost of equity capital would be one-third lower than if U.S.markets were segmented. 
D) None of the above 
A) That if the U.S.markets are fully integrated with the rest of the world, IBM's cost of equity capital would be 20% lower than if U.S.markets were segmented. 
B) That if the U.S.markets are fully integrated with the rest of the world, IBM's cost of equity capital would be 10% lower than if U.S.markets were segmented. 
C) That if the U.S.markets are fully integrated with the rest of the world, IBM's cost of equity capital would be one-third lower than if U.S.markets were segmented. 
D) None of the above

Question 19

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 2½.

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: 11.20\% = 1/2 =\lambda 8.0\% =i 40.0\% =\tau

Solve for the weighted average cost of capital: 17.20\% = 6/7 =\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 an after-tax cost of debt of 8%.

Solve for the weighted average cost of capital: $12.40 \% \quad K _ { l } =$ cost of equity capital for a leveraged firm $2 / 3 \lambda =$ debt-to-total-market-value ratio $8.0 \% \quad i =$ before-tax borrowing cost $40.0 \% \quad \tau =$ marginal corporate income tax rate

Assume that XYZ Corporation is a leveraged company with the following information: = cost of 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:

The required return on equity for a levered firm is 10.60%.The debt to equity ratio is ½ the tax rate is 40%,the pre-tax cost of debt is 8%.Find the cost of capital if this firm were financed entirely with equity.

Find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of ⅔.

With regard to the financial structure of a foreign subsidiary

Solve for the weighted average cost of capital: $16.00 \% \quad K _ { l } =$ cost of equity capital for a leveraged firm $5 / 6 \lambda =$ debt-to-total-market-value ratio $8.0 \% \quad i =$ before-tax borrowing cost $40.0 \% \quad \tau =$ marginal corporate income tax rate

For a firm confronted with a fixed schedule of possible new investments,any policy that lowers the firm's cost of capital will increase the profitable capital expenditures the firm takes on and increase the wealth of the firm's shareholders.One such policy is

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

A firm may cross-list its share to

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

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?

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

At the optimal capital structure,

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 2½.

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: 11.20\% = 1/2 =\lambda 8.0\% =i 40.0\% =\tau

Solve for the weighted average cost of capital: 17.20\% = 6/7 =\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 an after-tax cost of debt of 8%.

Assume that XYZ Corporation is a leveraged company with the following information: = cost of 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:

The required return on equity for a levered firm is 10.60%.The debt to equity ratio is ½ the tax rate is 40%,the pre-tax cost of debt is 8%.Find the cost of capital if this firm were financed entirely with equity.

Find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of ⅔.

With regard to the financial structure of a foreign subsidiary

For a firm confronted with a fixed schedule of possible new investments,any policy that lowers the firm's cost of capital will increase the profitable capital expenditures the firm takes on and increase the wealth of the firm's shareholders.One such policy is

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

A firm may cross-list its share to

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

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?

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

At the optimal capital structure,

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 2½.

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