Exam 17: International Capital Structure and the Cost of Capital

Suppose that the British stock market is integrated with the rest of the world and Stansfield Company has made its shares tradable internationally via cross-listing on the NYSE. Using the CAPM and a risk-free rate of 5%, estimate the equity cost of capital for Stansfield.

Systematic risk refers to

Solve for the weighted average cost of capital:

For most countries and most firms, the domestic country beta

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

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%.

The market risk premium

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.

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

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

The parent company should decide the financing method for its own subsidiaries

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

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

Solve for the weighted average cost of capital:

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?

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%.

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

Solve for the weighted average cost of capital:

In the real world, many firms that have cross-listed their shares on the U.S. markets have experienced a reduction in the cost of capital. This effect was greater for

A reduced cost of equity capital increases the firm's value