Exam 14: Raising Equity and Debt Globally

TropiKana Inc.,a U.S firm,has just borrowed euro 1,000,000 to make improvements to an Italian fruit plantation and processing plant.If the interest rate is 5.50% per year and the Euro appreciates against the dollar from $1.40/€ at the time the loan was made to $1.45/€ at the end of the first year,what is the before tax cost of capital if the firm repays the entire loan plus interest (rounded)?

ADRs that are created at the request of a foreign firm wanting its shares traded in the United States are:

TropiKana Inc.,a U.S firm,has just borrowed euro 1,000,000 to make improvements to an Italian fruit plantation and processing plant.If the interest rate is 5.50% per year and the Euro depreciates against the dollar from $1.40/€ at the time the loan was made to $1.35/€ at the end of the first year,how much interest and principle will TropiKana pay at the end of the first year if they repay the entire loan plus interest (rounded)?

Of the following,which was NOT cited by the authors as a valuable function provided by the Eurocurrency market?

________ are domestic currencies of one country on deposit in a second country.

Which of the following is a characteristic of an euroequity issue?

Level I ADRs trade primarily:

In theory multinational firms are in a better position than domestic firms to support higher debt ratios.Provide an argument as to why this could be true and discuss the empirical research findings about US based MNEs.

Which of the following is NOT a factor offsetting the tax advantage of debt as a source of financing?

One of the most important factors in making debt less expensive than equity is:

Portfolio diversification of domestic firms reduces risk because cash flows are not perfectly correlated.The same reasoning is often argued for MNEs diversifying into international markets.

Empirical evidence shows that new issues of equity by domestic firms in the U.S.market typically has a ________ stock price reaction and new equity issues in the U.S.markets by foreign firms with segmented domestic markets have a ________ stock price reaction.

The Euro-medium-term-note (EMTN)has filled a substantial niche market in global financing.What are the distinguishing characteristics of the EMTN and why is it such a popular form of financing for MNEs?

When a firm borrows in a foreign currency,the effective cost is the foreign interest rate plus an adjustment for changes in the exchange rate.

Depositary receipts traded outside the United States are called ________ depositary receipts.

Private equity funds differ from traditional venture capital funds.List and discuss three differences between them.

TropiKana Inc.,a U.S firm,has just borrowed euro 1,000,000 to make improvements to an Italian fruit plantation and processing plant.If the interest rate is 5.50% per year and the Euro appreciates against the dollar from $1.40/€ at the time the loan was made to $1.45/€ at the end of the first year,how much interest and principle will TropiKana pay at the end of the first year if they repay the entire loan plus interest (rounded)?

Most financial theorists believe that the optimal capital structure is a ________ with a debt to total value ratio somewhere around ________.

Who pays the costs of creating a sponsored ADR?

In general,which has the shorter maturity and is more appropriate for funding short-term inventory needs?