Question 1

There is a high probability that the cost of capital for a foreign project will

Accepted Answer

A) exceed the cost of capital for a comparable domestic project 
B) be no greater than the cost of capital for a comparable domestic project 
C) be the same as the cost of capital for a comparable domestic project 
D) exceed the investor's required rate of return 
A) exceed the cost of capital for a comparable domestic project 
B) be no greater than the cost of capital for a comparable domestic project 
C) be the same as the cost of capital for a comparable domestic project 
D) exceed the investor's required rate of return B

Question 2

When computing the weighted average cost of capital,the weighting should be proportional based on the ______ rather than the _____ value of the firm.

Accepted Answer

A) book,market 
B) hypothetical,book 
C) market,analyst's 
D) market,book 
A) book,market 
B) hypothetical,book 
C) market,analyst's 
D) market,book D

Question 3

Assume an average dividend payout rate of 60% for U.S.companies and 35% for Japanese companies.Suppose the average P/E ratio for Japanese firms is 38 and 16 for U.S.firms.Based on the dividend growth model,in order for Japanese companies to have the same 12% average cost of equity capital estimated for U.S.companies,how much higher would the Japanese annual earnings growth rate have to be?

Accepted Answer

A) 8.74% 
B) 3.45% 
C) 7.60% 
D) 2.83% 
A) 8.74% 
B) 3.45% 
C) 7.60% 
D) 2.83% D

Question 4

The minimum risk-adjusted return required by shareholders of the firm for undertaking the investment is known as the

Accepted Answer

A) risk-free rate of return 
B) intrinsic value 
C) cost of capital 
D) market rate of return 
A) risk-free rate of return 
B) intrinsic value 
C) cost of capital 
D) market rate of return

Question 5

A U.S.company that has issued euro bonds could hedge at least part of the exchange risk associated with those bonds by

Accepted Answer

A) invoicing its exports to Germany in euro 
B) invoicing its imports from Germany in euro 
C) invoicing its exports to Germany in dollars 
D) invoicing its imports from Germany in dollars 
A) invoicing its exports to Germany in euro 
B) invoicing its imports from Germany in euro 
C) invoicing its exports to Germany in dollars 
D) invoicing its imports from Germany in dollars

Question 6

Systematic risk is that portion of return variability that

Accepted Answer

A) can be eliminated through diversification 
B) cannot be eliminated unless fixed income securities are added to the portfolio 
C) can be reduced through diversification but not eliminated 
D) cannot be eliminated through diversification 
A) can be eliminated through diversification 
B) cannot be eliminated unless fixed income securities are added to the portfolio 
C) can be reduced through diversification but not eliminated 
D) cannot be eliminated through diversification

Question 7

To avoid the awkward process of transferring the cost of capital going from the parent to the subsidiary,it is advisable to use the _______ rate.

Accepted Answer

A) prime market interest 
B) all-equity discount 
C) all-debt discount 
D) both the equity and debt discount 
A) prime market interest 
B) all-equity discount 
C) all-debt discount 
D) both the equity and debt discount

Question 8

Which project is likely to entail the least systematic risk?

Accepted Answer

A) a Ford plant in Brazil producing engines for export to the U.S. 
B) a Coca Cola plant in Brazil selling locally 
C) a machine tool plant in Japan 
D) a computer disk drive plant in Germany 
A) a Ford plant in Brazil producing engines for export to the U.S. 
B) a Coca Cola plant in Brazil selling locally 
C) a machine tool plant in Japan 
D) a computer disk drive plant in Germany

Question 9

Suppose the euro is expected to appreciate by 4% annually against the dollar.If a company can borrow dollars at 9.3%,what is the highest interest rate it should be willing to pay to borrow euro,assuming it is trying to minimize its expected financing cost?

Accepted Answer

A) 5.1% 
B) 4.3% 
C) 7.2% 
D) 8.9% 
A) 5.1% 
B) 4.3% 
C) 7.2% 
D) 8.9%

Question 10

The cost of capital for a project depends on

Accepted Answer

A) the correlation between returns on the project and returns on a domestic market index 
B) the correlation between returns on the project and returns on a globally-diversified portfolio 
C) the correlation between returns on the project and returns on the firm's other activities 
D) whether the price of risk is set on a domestic or worldwide basis 
A) the correlation between returns on the project and returns on a domestic market index 
B) the correlation between returns on the project and returns on a globally-diversified portfolio 
C) the correlation between returns on the project and returns on the firm's other activities 
D) whether the price of risk is set on a domestic or worldwide basis

Question 11

The cost of capital for a project in Spain should

Accepted Answer

A) equal the parent's weighted average cost of capital 
B) equal the required return for a similar investment in the U.S. 
C) equal the minimum rate of return necessary to induce investors to buy or hold the firm's stock 
D) be a function of the riskiness of the project itself 
A) equal the parent's weighted average cost of capital 
B) equal the required return for a similar investment in the U.S. 
C) equal the minimum rate of return necessary to induce investors to buy or hold the firm's stock 
D) be a function of the riskiness of the project itself

Question 12

The systematic risk of a project depends on

Accepted Answer

A) the correlation between returns on the project and returns on the world market portfolio 
B) the correlation between returns on the project and returns on a domestically-diversified portfolio 
C) whether investors hold a domestically- or globally-diversified portfolio 
D) the various political and economic risks the project is subject to 
A) the correlation between returns on the project and returns on the world market portfolio 
B) the correlation between returns on the project and returns on a domestically-diversified portfolio 
C) whether investors hold a domestically- or globally-diversified portfolio 
D) the various political and economic risks the project is subject to

Question 13

In general,the dollar cost of borrowing local currency at an interest rate and currency change is the sum of the dollar interest cost plus

Accepted Answer

A) the percentage change in the exchange rate. 
B) the fees associated with raising capital. 
C) the percentage difference between the corporate beta and the project beta. 
D) the percentage change in the forward exchange rate. 
A) the percentage change in the exchange rate. 
B) the fees associated with raising capital. 
C) the percentage difference between the corporate beta and the project beta. 
D) the percentage change in the forward exchange rate.

Question 14

Since both the project risk and the project's financial structure can vary from the corporate norm,to reflect the actual values of the different cost components,it is necessary to

Accepted Answer

A) adjust the costs and weights. 
B) always refer to the corporate weighted average cost of capital. 
C) adjust the project's beta. 
D) adjust the required rate of return of the project. 
A) adjust the costs and weights. 
B) always refer to the corporate weighted average cost of capital. 
C) adjust the project's beta. 
D) adjust the required rate of return of the project.

Question 15

Suppose that a foreign project has a beta of 1.12,the risk-free return is 9.3% and the required return on the market is estimated at 18%.Then the cost of capital for the project is

Accepted Answer

A) 17.21% 
B) 21.37% 
C) 19.04% 
D) 20.03% 
A) 17.21% 
B) 21.37% 
C) 19.04% 
D) 20.03%

Question 16

The cost of capital for a project in Australia should theoretically

Accepted Answer

A) equal the parent's weighted average cost of capital 
B) equal the required return for a similar investment in the U.S. 
C) equal the minimum rate of return necessary to induce investors to buy or hold the firm's stock 
D) depend on the riskiness of the project itself 
A) equal the parent's weighted average cost of capital 
B) equal the required return for a similar investment in the U.S. 
C) equal the minimum rate of return necessary to induce investors to buy or hold the firm's stock 
D) depend on the riskiness of the project itself

Question 17

Suppose that a foreign project has a beta of 1.15,the risk-free return is 13% and the required return on the market is estimated at 21%.Then the cost of capital for the project is

Accepted Answer

A) 24.2% 
B) 22.2% 
C) 19.3% 
D) 15.4% 
A) 24.2% 
B) 22.2% 
C) 19.3% 
D) 15.4%

Question 18

The principal advantages of investing in foreign affiliates in the form of debt instead of equity is to

Accepted Answer

A) reduce taxes 
B) reduce the impact of currency controls 
C) both a and b 
D) there are no advantages 
A) reduce taxes 
B) reduce the impact of currency controls 
C) both a and b 
D) there are no advantages

Question 19

The cost of capital for a General Foods Jell-O plant in Venezuela is likely to be

Accepted Answer

A) lower than for a comparable plant in the U.S. ,because its systematic risk is probably lower 
B) higher than for a comparable U.S.plant because of the added risks associated with the unstable economic and political environment 
C) about the same because the systematic risk is likely to be very similar 
D) greatly impacted by the change in political parties in neighboring Colombia 
A) lower than for a comparable plant in the U.S. ,because its systematic risk is probably lower 
B) higher than for a comparable U.S.plant because of the added risks associated with the unstable economic and political environment 
C) about the same because the systematic risk is likely to be very similar 
D) greatly impacted by the change in political parties in neighboring Colombia

Question 20

The ________ for a given investment is the minimum risk-adjusted return required by the shareholders of the firm for undertaking that investment.

Accepted Answer

A) cost of equity capital 
B) systematic risk 
C) all-equity beta 
D) weighted average cost of capital 
A) cost of equity capital 
B) systematic risk 
C) all-equity beta 
D) weighted average cost of capital

There is a high probability that the cost of capital for a foreign project will

When computing the weighted average cost of capital,the weighting should be proportional based on the __ rather than the _ value of the firm.

The minimum risk-adjusted return required by shareholders of the firm for undertaking the investment is known as the

A U.S.company that has issued euro bonds could hedge at least part of the exchange risk associated with those bonds by

Systematic risk is that portion of return variability that

To avoid the awkward process of transferring the cost of capital going from the parent to the subsidiary,it is advisable to use the _______ rate.

Which project is likely to entail the least systematic risk?

Suppose the euro is expected to appreciate by 4% annually against the dollar.If a company can borrow dollars at 9.3%,what is the highest interest rate it should be willing to pay to borrow euro,assuming it is trying to minimize its expected financing cost?

The cost of capital for a project depends on

The cost of capital for a project in Spain should

The systematic risk of a project depends on

In general,the dollar cost of borrowing local currency at an interest rate and currency change is the sum of the dollar interest cost plus

Since both the project risk and the project's financial structure can vary from the corporate norm,to reflect the actual values of the different cost components,it is necessary to

Suppose that a foreign project has a beta of 1.12,the risk-free return is 9.3% and the required return on the market is estimated at 18%.Then the cost of capital for the project is

The cost of capital for a project in Australia should theoretically

Suppose that a foreign project has a beta of 1.15,the risk-free return is 13% and the required return on the market is estimated at 21%.Then the cost of capital for the project is

The principal advantages of investing in foreign affiliates in the form of debt instead of equity is to

The cost of capital for a General Foods Jell-O plant in Venezuela is likely to be

The ________ for a given investment is the minimum risk-adjusted return required by the shareholders of the firm for undertaking that investment.

Introduction

The Determination of Exchange Rates

The International Monetary System

Parity Conditions in International Finance and Currency Forecasting

The Balance of Payments and International Economic Linkages

Country Risk Analysis

The Foreign Exchange Market

Currency Futures and Options Markets

Swaps and Interest Rate Derivatives

Measuring and Managing Translation and Transaction Exposure

Measuring and Managing Economic Exposure

International Financing and National Capital Markets

Functions of Euromarkets

Examining International Portfolio Investing

Corporate Strategy and Foreign Direct Investment

Capital Budgeting for the Multinational Corporation

Financing Foreign Trade

Current Asset Management and Short-Term Financing

Managing the Multinational Financial System

Filters

Exam 14: The Cost of Capital for Foreign Investments

There is a high probability that the cost of capital for a foreign project will

When computing the weighted average cost of capital,the weighting should be proportional based on the ______ rather than the _____ value of the firm.

The minimum risk-adjusted return required by shareholders of the firm for undertaking the investment is known as the

A U.S.company that has issued euro bonds could hedge at least part of the exchange risk associated with those bonds by

Systematic risk is that portion of return variability that

To avoid the awkward process of transferring the cost of capital going from the parent to the subsidiary,it is advisable to use the _______ rate.

Which project is likely to entail the least systematic risk?

Suppose the euro is expected to appreciate by 4% annually against the dollar.If a company can borrow dollars at 9.3%,what is the highest interest rate it should be willing to pay to borrow euro,assuming it is trying to minimize its expected financing cost?

The cost of capital for a project depends on

The cost of capital for a project in Spain should

The systematic risk of a project depends on

In general,the dollar cost of borrowing local currency at an interest rate and currency change is the sum of the dollar interest cost plus

Since both the project risk and the project's financial structure can vary from the corporate norm,to reflect the actual values of the different cost components,it is necessary to

Suppose that a foreign project has a beta of 1.12,the risk-free return is 9.3% and the required return on the market is estimated at 18%.Then the cost of capital for the project is

The cost of capital for a project in Australia should theoretically

Suppose that a foreign project has a beta of 1.15,the risk-free return is 13% and the required return on the market is estimated at 21%.Then the cost of capital for the project is

The principal advantages of investing in foreign affiliates in the form of debt instead of equity is to

The cost of capital for a General Foods Jell-O plant in Venezuela is likely to be

The ________ for a given investment is the minimum risk-adjusted return required by the shareholders of the firm for undertaking that investment.

Introduction

The Determination of Exchange Rates

The International Monetary System

Parity Conditions in International Finance and Currency Forecasting

The Balance of Payments and International Economic Linkages

Country Risk Analysis

The Foreign Exchange Market

Currency Futures and Options Markets

Swaps and Interest Rate Derivatives

Measuring and Managing Translation and Transaction Exposure

Measuring and Managing Economic Exposure

International Financing and National Capital Markets

Functions of Euromarkets

Examining International Portfolio Investing

Corporate Strategy and Foreign Direct Investment

Capital Budgeting for the Multinational Corporation

Financing Foreign Trade

Current Asset Management and Short-Term Financing

Managing the Multinational Financial System

Filters

When computing the weighted average cost of capital,the weighting should be proportional based on the __ rather than the _ value of the firm.