Question 1

Find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of ¾.

Accepted Answer

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

Question 2

The formula for beta is:

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 3

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 4

In the Capital Asset Pricing Model (CAPM), the term Beta, β, is

Accepted Answer

A) a measure of systematic risk inherent in a security. 
B) calculated as the "covariance of future returns between a specific security and the market portfolio" divided by the "variance of returns of the market portfolio". 
C) both a and b 
D) none of the above 
A) a measure of systematic risk inherent in a security. 
B) calculated as the "covariance of future returns between a specific security and the market portfolio" divided by the "variance of returns of the market portfolio". 
C) both a and b 
D) none of the above

Question 5

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 6

When the choice of financing a foreign subsidiary is between external debt and equity financing

Accepted Answer

A) political risk considerations tend to favor the latter. 
B) political risk considerations tend to favor the former. 
C) political risk is separate from financial risk and so does not enter into a discussion of debt equity ratios. 
D) none of the above 
A) political risk considerations tend to favor the latter. 
B) political risk considerations tend to favor the former. 
C) political risk is separate from financial risk and so does not enter into a discussion of debt equity ratios. 
D) none of the above

Question 7

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 - λ)Kl + λ (1 - τ)i where:
K = weighted average cost of capital
Kl = cost of equity capital for a leveraged firm
I = before-tax borrowing cost
Τ = marginal corporate income tax rate
Λ = 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 - λ)Kl + λ (1 - τ)i where:
K = weighted average cost of capital
Kl = cost of equity capital for a leveraged firm
I = before-tax borrowing cost
Τ = marginal corporate income tax rate
Λ = debt-to-total-market-value ratio 
D) b and c

Question 8

Assume that the risk-free rate of return is 4%, and the expected return on the market portfolio is 10%. If the systematic risk inherent in the stock of ABC Corporation is 1.80, using the Capital Asset Pricing Model (CAPM) calculate the expected return of ABC.

Accepted Answer

A) 14.0% 
B) 14.8% 
C) 16.0% 
D) 16.8% 
A) 14.0% 
B) 14.8% 
C) 16.0% 
D) 16.8%

Question 9

A recent study of MNCs suggests that when a foreign subsidiary's obligations cannot be met with locally generated revenues,

Accepted Answer

A) parent firms bail out their subsidiaries regardless of circumstances. 
B) that parent firms routinely allow subsidiaries to default. 
C) most subsidiaries are financed almost entirely with banker's acceptances. 
D) none of the above 
A) parent firms bail out their subsidiaries regardless of circumstances. 
B) that parent firms routinely allow subsidiaries to default. 
C) most subsidiaries are financed almost entirely with banker's acceptances. 
D) none of the above

Question 10

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 11

A value-maximizing firm's would

Accepted Answer

A) undertake an investment project as long as the IRR exceeds the NPV. 
B) undertake an investment project as long as the IRR is less than the cost of capital. 
C) undertake an investment project as long as the IRR exceeds the cost of capital. 
D) none of the above 
A) undertake an investment project as long as the IRR exceeds the NPV. 
B) undertake an investment project as long as the IRR is less than the cost of capital. 
C) undertake an investment project as long as the IRR exceeds the cost of capital. 
D) none of the above

Question 12

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

Question 13

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 14

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

Accepted Answer

A) 8% 
B) 9% 
C) 10% 
D) 12% 
A) 8% 
B) 9% 
C) 10% 
D) 12%

Question 15

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 16

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 17

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 18

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 19

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 20

The cost of capital is

Accepted Answer

A) the minimum rate of return an investment project must generate in order to pay its financing costs. 
B) the minimum rate of return an investment project must generate in order to pay its financing costs plus a reasonable profit. 
C) the maximum rate of return an investment project must generate in order to pay its financing costs. 
D) the maximum rate of return an investment project must generate in order to pay its financing costs plus a reasonable profit. 
A) the minimum rate of return an investment project must generate in order to pay its financing costs. 
B) the minimum rate of return an investment project must generate in order to pay its financing costs plus a reasonable profit. 
C) the maximum rate of return an investment project must generate in order to pay its financing costs. 
D) the maximum rate of return an investment project must generate in order to pay its financing costs plus a reasonable profit.

Find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of ¾.

The formula for beta is:

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

In the Capital Asset Pricing Model (CAPM), the term Beta, β, is

Solve for the weighted average cost of capital:

When the choice of financing a foreign subsidiary is between external debt and equity financing

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

Assume that the risk-free rate of return is 4%, and the expected return on the market portfolio is 10%. If the systematic risk inherent in the stock of ABC Corporation is 1.80, using the Capital Asset Pricing Model (CAPM) calculate the expected return of ABC.

A recent study of MNCs suggests that when a foreign subsidiary's obligations cannot be met with locally generated revenues,

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

A value-maximizing firm's would

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

Studies suggest that international capital markets are not segmented anymore

Solve for the weighted average cost of capital:

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

Solve for the weighted average cost of capital:

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

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

The cost of capital is

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

Find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of ¾.

The formula for beta is:

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

In the Capital Asset Pricing Model (CAPM), the term Beta, β, is

Solve for the weighted average cost of capital:

When the choice of financing a foreign subsidiary is between external debt and equity financing

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

Assume that the risk-free rate of return is 4%, and the expected return on the market portfolio is 10%. If the systematic risk inherent in the stock of ABC Corporation is 1.80, using the Capital Asset Pricing Model (CAPM) calculate the expected return of ABC.

A recent study of MNCs suggests that when a foreign subsidiary's obligations cannot be met with locally generated revenues,

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

A value-maximizing firm's would

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

Studies suggest that international capital markets are not segmented anymore

Solve for the weighted average cost of capital:

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

Solve for the weighted average cost of capital:

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

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

The cost of capital is

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