Question 1

Solve for the weighted average cost of capital:

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% B

Question 2

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 A

Question 3

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 B

Question 4

Solve for the weighted average cost of capital:

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

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 6

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 7

Solve for the weighted average cost of capital:

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 8

Solve for the weighted average cost of capital:

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 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

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 the United States, but only if international financial markets are not fully integrated. 
B) the cost of capital can be lower in Japan than the United States, even if international financial markets are fully integrated. 
C) the cost of capital will be higher in Japan than 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 the United States, but only if international financial markets are not fully integrated. 
B) the cost of capital can be lower in Japan than the United States, even if international financial markets are fully integrated. 
C) the cost of capital will be higher in Japan than the United States, even if international financial markets are fully integrated. 
D) none of the above

Question 11

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 12

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 13

Solve for the weighted average cost of capital:

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 14

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

Accepted Answer

A) The debt-to-equity ratio is λ 
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 λ 
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 15

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 16

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 17

Solve for the weighted average cost of capital:

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 18

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 19

At the optimal capital structure,

Accepted Answer

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

Question 20

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

Solve for the weighted average cost of capital:

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

In the graph,

Solve for the weighted average cost of capital:

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

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.

Solve for the weighted average cost of capital:

Solve for the weighted average cost of capital:

With regard to the financial structure of a foreign subsidiary

Recent studies suggest that agency costs of managerial discretion are lower in Japan than in the United States. This suggests that

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

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:

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

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

Solve for the weighted average cost of capital:

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

At the optimal 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%. What is the firm's cost of equity capital?

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:

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

In the graph,

Solve for the weighted average cost of capital:

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

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.

Solve for the weighted average cost of capital:

Solve for the weighted average cost of capital:

With regard to the financial structure of a foreign subsidiary

Recent studies suggest that agency costs of managerial discretion are lower in Japan than in the United States. This suggests that

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

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:

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

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

Solve for the weighted average cost of capital:

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

At the optimal 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%. What is the firm's cost of equity capital?

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 - λ)K_l + λ(1 - τ)i Which of the following are correct?