Exam 14: The Cost of Capital for Foreign Investments

This may serve as a reasonable proxy for the required return on equity of a project when the returns and financial structure of the project are expected to be similar to those of the firm's typical project.It would be the

One function of the cost of capital is to ________ for the firm.

Consider a project that costs $1 million today but yields no returns for several years.Once the project becomes productive,it yields $250,000 annually forever.Suppose two firms are examining this project,a Japanese firm with a cost of capital of 7% and a U.S.firm with a cost of capital of 13%.Approximately how many more years than the U.S.firm would the Japanese firm be willing to wait until the project starts generating cash?

When identifying proxy firms for a foreign project analysis,it is desirable to use _____ firms.

In an effort to estimate a proxy beta,and,if foreign proxy companies are not available,a second alternative would be to find a

What is the outcome when the cost of equity capital is combined with after-tax cost of debt?

The existence of offshore finance subsidiaries can be attributed primarily to

Suppose the euro is expected to depreciate against the dollar by 2% annually and the 10-year franc interest rate is 11%.What is the after-tax expected dollar cost of issuing a 10-year franc bond if the French corporate tax rate is 40%?

LDCs have greater ______ risk but offer the higher probability of diversification benefits.

The rates at which investors capitalize the returns on foreign projects depends on all of the following EXCEPT

Suppose that a foreign project has a beta of 1.12,the risk-free return is 8% and the required return on the market is estimated at 17%.Then cost of capital for the project is

Capital structures of foreign affiliates should

Suppose that a foreign project has a beta of 0.85,the risk-free return is 12%,and the required return on the market is estimated at 19%.Then the cost of capital for the project is

According to modern capital market theory an equilibrium relationship exists between an asset's required return and its associated risk,which can be represented by the _______ model.

One of the key issues in estimating foreign project betas is to find firms that are publicly traded that share _____ risk characteristics when compared to the project.

Assume an average dividend payout rate of 100% for both U.S.and 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 and U.S.companies to have the same average cost of equity capital,how much higher would the Japanese annual earnings growth rate have to be?