Exam 17: Multinational Capital Structure and Cost of Capital

When a firm issues stock in a country with weak laws on corporate disclosure and little legal protection for shareholders, the stock will generally be sold at a relatively ______ price, so the firm incurs a _____ cost of equity. ​

Capital asset pricing theory would most likely suggest that the cost of capital is generally ____ for ____.

In the United States, government rescues of failing firms are not as common as they are in some other countries. Assuming that this is expected to continue in the future, the risk premium on a given level of debt would be higher for U.S. firms than for firms in countries where government rescues are more common, everything else being equal.

The capital asset pricing model suggests that the required return on a firm's stock is a positive function of:

Normally, each subsidiary of an MNC will issue its own stock where it does business.

When assuming that investors in the United States are most concerned with their exposure to the U.S. stock market, it is acceptable to use the U.S. market when measuring a U.S.-based MNC's project's beta.

The credit risk premium on an MNC's loans tends to be lower in the United States than in most other countries because the U.S. government stands ready to rescue failing firms.

​According to the text, the cost of debt in each country:

Since the cost of funds can vary among markets, an MNC's access to the international capital markets may allow it to attract funds at a lower cost than that paid by domestic firms.

Because their economies have lower growth, the cost of debt in industrialized countries is much higher than the cost of debt in many less developed countries.

According to your text, which of the following is not a factor that increases an MNC's cost of capital?

Which of the following is not a host country characteristic than can affect an MNC's capital structure decision?

Capital asset pricing theory suggests that ____ risk of projects can be ignored and that ____ risk is relevant.

It is probably easier to estimate the cost of equity than it is to estimate the cost of debt.

Werner Corporation has a target capital structure that consists of 40 percent debt and 60 percent equity. Werner can borrow at an interest rate of 10 percent. Also, Werner has determined its cost of equity to be 14 percent. Werner's tax rate is 20 percent. What is Werner's weighted average cost of capital?

____ are beneficial because they may reduce transaction costs. However, MNCs may not be able to obtain all the funds that they need.​

The ____ an MNC, the ____ its cost of capital is likely to be.

When MNCs pursue international projects that have a high potential for return, but also increase their risk, this increases the return to the bondholders that provided credit to the MNCs.

According to the text, the cost of capital for an international project will:

An MNC's "global" target capital structure is: