Question 1

According to the text,an MNC's "global" target capital structure is:

Accepted Answer

A)  always debt intensive. 
B)  always equity intensive. 
C)  sometimes different from an MNC's "local" capital struc tures (at subsidiaries). 
D)  none of the above 
A)  always debt intensive. 
B)  always equity intensive. 
C)  sometimes different from an MNC's "local" capital struc tures (at subsidiaries). 
D)  none of the above C

Question 2

One argument for why subsidiaries should be only partlyowned by the parent is:

Accepted Answer

A)  that the potential conflict of interests between the MNC's managers and shareholders is avoided. 
B)  that the potential conflict of interests between the MNC's majority shareholders and minority shareholders is avoided. 
C)  that the potential conflict of interests between the MNC's existing creditors is avoided. 
D)  to offer some protection against threats of any adverse actions by the host government. 
A)  that the potential conflict of interests between the MNC's managers and shareholders is avoided. 
B)  that the potential conflict of interests between the MNC's majority shareholders and minority shareholders is avoided. 
C)  that the potential conflict of interests between the MNC's existing creditors is avoided. 
D)  to offer some protection against threats of any adverse actions by the host government. D

Question 3

The ____________ the cost of capital,the ___________ will be a project's net present value for a project with a given set of expected cash flows.

Accepted Answer

A)  lower;higher 
B)  higher;higher 
C)  lower;lower 
D)  none of the above 
A)  lower;higher 
B)  higher;higher 
C)  lower;lower 
D)  none of the above A

Question 4

The term "local target capital structure" is used in the text to represent:

Accepted Answer

A)  the average capital structure of local firms where the MNC's subsidiary is based. 
B)  the average capital structure of local firms where the MNC's parent is based. 
C)  the desired capital structure of a subsidiary of a particular MNC. 
D)  the desired capital structure of a particular MNC overall (including all subsidiaries). 
A)  the average capital structure of local firms where the MNC's subsidiary is based. 
B)  the average capital structure of local firms where the MNC's parent is based. 
C)  the desired capital structure of a subsidiary of a particular MNC. 
D)  the desired capital structure of a particular MNC overall (including all subsidiaries).

Question 5

Generally speaking,an MNC's size,its access to international capital markets,and international diversification are unfavorable to an MNC's cost of capital.

Accepted Answer

A) True 
 B)False

Question 6

An argument for MNCs to have a debt-intensive capital structure is:

Accepted Answer

A)  they are well diversified. 
B)  foreign government tax rules may change over time. 
C)  exposure to exchange rate fluctuations. 
D)  exposure to fund blockage. 
A)  they are well diversified. 
B)  foreign government tax rules may change over time. 
C)  exposure to exchange rate fluctuations. 
D)  exposure to fund blockage.

Question 7

Because increased external financing by a foreign subsidiary reduces the external financing needed by the parent,such an action will not affect the overall MNC's cost of capital.

Accepted Answer

A) True 
 B)False

Question 8

The term "global" target capital structure for an MNC represents the MNC's capital structure:

Accepted Answer

A)  in the U.S. 
B)  relative to competitors across all countries. 
C)  where it has its largest subsidiary. 
D)  when consolidating all of its subsidiaries. 
A)  in the U.S. 
B)  relative to competitors across all countries. 
C)  where it has its largest subsidiary. 
D)  when consolidating all of its subsidiaries.

Question 9

Assume the following information for Pexi Co.,a U.S.-based MNC that is considering obtaining funding for a project in Germany:
U.S.risk-free rate = 4%
German risk-free rate = 5%
Risk premium on dollar-denominated debt provided by U.S.creditors = 3%
Risk premium on euro-denominated debt provided by German creditors = 4%
Beta of project = 1.2
Expected U.S.market return = 10%
U.S.corporate tax rate = 30%
German corporate tax rate = 40%
What is Pexi's cost of dollar-denominated equity

Accepted Answer

A)  12.0%. 
B)  11.2%. 
C)  10.0%. 
D)  7.2%. 
A)  12.0%. 
B)  11.2%. 
C)  10.0%. 
D)  7.2%.

Question 10

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

Accepted Answer

A)  unsystematic;unsystematic 
B)  unsystematic;systematic 
C)  systematic;unsystematic 
D)  systematic;systematic 
A)  unsystematic;unsystematic 
B)  unsystematic;systematic 
C)  systematic;unsystematic 
D)  systematic;systematic

Question 11

To the extent that individual economies are ______________ each other,net cash flows from a portfolio of subsidiaries should exhibit ________ variability,which may reduce the probability of bankruptcy.

Accepted Answer

A)  dependent on;less 
B)  dependent on;more 
C)  independent of;less 
D)  independent of;more 
A)  dependent on;less 
B)  dependent on;more 
C)  independent of;less 
D)  independent of;more

Question 12

According to the text,there is evidence that the debt ratios (debt/capital)of MNCs based in:

Accepted Answer

A)  the U.S. tend to be generally higher than MNCs headquartered in Japan and Germany. 
B)  the United Kingdom tend to be generally higher than MNCs headquartered in other non U.S. countries. 
C)  the U.S. tend to be generally lower than MNCs headquar tered in Japan and Germany. 
D)  A and B 
A)  the U.S. tend to be generally higher than MNCs headquartered in Japan and Germany. 
B)  the United Kingdom tend to be generally higher than MNCs headquartered in other non U.S. countries. 
C)  the U.S. tend to be generally lower than MNCs headquar tered in Japan and Germany. 
D)  A and B

Question 13

The cost of capital for MNCs based in the U.S.has been generally _______ than MNCs based in Germany and _______ than MNCs based in Japan.

Accepted Answer

A)  lower;lower 
B)  lower;higher 
C)  higher;higher 
D)  higher;lower 
A)  lower;lower 
B)  lower;higher 
C)  higher;higher 
D)  higher;lower

Question 14

Which of the following is not a factor that favorably affects an MNC's cost of capital,according to your text

Accepted Answer

A)  exchange rate risk. 
B)  size. 
C)  access to international capital markets. 
D)  international diversification. 
A)  exchange rate risk. 
B)  size. 
C)  access to international capital markets. 
D)  international diversification.

Question 15

In the United States,government rescues are not as common as in other countries,such as the United Kingdom.Therefore,the risk premium on a given level of debt would be higher for U.S.firms than for firms of the United Kingdom,everything else being equal.

Accepted Answer

A) True 
 B)False

Question 16

A firm's cost of ___________ reflects an opportunity cost: what the existing shareholders could have earned if they had received the earnings as dividends and invested the funds themselves..

Accepted Answer

A)  debt 
B)  retained earnings 
C)  new common equity 
D)  none of the above 
A)  debt 
B)  retained earnings 
C)  new common equity 
D)  none of the above

Question 17

According to the text:

Accepted Answer

A)  the cost of debt for each country is somewhat stable over time. 
B)  the cost of debt for countries change over time, and these changes are negatively correlated. 
C)  the cost of debt for countries change over time, and these changes are positively correlated. 
D)  the cost of debt for countries change over time, and are not correlated. 
A)  the cost of debt for each country is somewhat stable over time. 
B)  the cost of debt for countries change over time, and these changes are negatively correlated. 
C)  the cost of debt for countries change over time, and these changes are positively correlated. 
D)  the cost of debt for countries change over time, and are not correlated.

Question 18

The lower a project's beta,the _______ is the project's _________ risk.

Accepted Answer

A)  lower;systematic 
B)  lower;unsystematic 
C)  higher;systematic 
D)  higher;unsystematic 
A)  lower;systematic 
B)  lower;unsystematic 
C)  higher;systematic 
D)  higher;unsystematic

Question 19

Assume a subsidiary is forced to borrow in excess of the MNC's optimal capital structure.Also assume that the parent company reduces its debt financing by an offsetting amount.Under this scenario,the cost of capital for the MNC overall could not have changed.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A)  exchange rate risk. 
B)  country risk. 
C)  political risk. 
D)  size. 
A)  exchange rate risk. 
B)  country risk. 
C)  political risk. 
D)  size.

According to the text,an MNC's "global" target capital structure is:

One argument for why subsidiaries should be only partlyowned by the parent is:

The __ the cost of capital,the _ will be a project's net present value for a project with a given set of expected cash flows.

The term "local target capital structure" is used in the text to represent:

Generally speaking,an MNC's size,its access to international capital markets,and international diversification are unfavorable to an MNC's cost of capital.

An argument for MNCs to have a debt-intensive capital structure is:

Because increased external financing by a foreign subsidiary reduces the external financing needed by the parent,such an action will not affect the overall MNC's cost of capital.

The term "global" target capital structure for an MNC represents the MNC's capital structure:

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

To the extent that individual economies are ______ each other,net cash flows from a portfolio of subsidiaries should exhibit variability,which may reduce the probability of bankruptcy.

According to the text,there is evidence that the debt ratios (debt/capital)of MNCs based in:

The cost of capital for MNCs based in the U.S.has been generally _ than MNCs based in Germany and _ than MNCs based in Japan.

Which of the following is not a factor that favorably affects an MNC's cost of capital,according to your text

In the United States,government rescues are not as common as in other countries,such as the United Kingdom.Therefore,the risk premium on a given level of debt would be higher for U.S.firms than for firms of the United Kingdom,everything else being equal.

A firm's cost of ___________ reflects an opportunity cost: what the existing shareholders could have earned if they had received the earnings as dividends and invested the funds themselves..

According to the text:

The lower a project's beta,the _ is the project's ___ risk.

Assume a subsidiary is forced to borrow in excess of the MNC's optimal capital structure.Also assume that the parent company reduces its debt financing by an offsetting amount.Under this scenario,the cost of capital for the MNC overall could not have changed.

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

Multinational Financial Management: An Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships among Inflation,Interest Rates,and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

Multinational Restructuring

Country Risk Analysis

Long-Term Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Exam 17: Multinational Cost of Capital and Capital Structure

According to the text,an MNC's "global" target capital structure is:

One argument for why subsidiaries should be only partlyowned by the parent is:

The ____________ the cost of capital,the ___________ will be a project's net present value for a project with a given set of expected cash flows.

The term "local target capital structure" is used in the text to represent:

Generally speaking,an MNC's size,its access to international capital markets,and international diversification are unfavorable to an MNC's cost of capital.

An argument for MNCs to have a debt-intensive capital structure is:

Because increased external financing by a foreign subsidiary reduces the external financing needed by the parent,such an action will not affect the overall MNC's cost of capital.

The term "global" target capital structure for an MNC represents the MNC's capital structure:

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

To the extent that individual economies are ______________ each other,net cash flows from a portfolio of subsidiaries should exhibit ________ variability,which may reduce the probability of bankruptcy.

According to the text,there is evidence that the debt ratios (debt/capital)of MNCs based in:

The cost of capital for MNCs based in the U.S.has been generally _______ than MNCs based in Germany and _______ than MNCs based in Japan.

Which of the following is not a factor that favorably affects an MNC's cost of capital,according to your text

In the United States,government rescues are not as common as in other countries,such as the United Kingdom.Therefore,the risk premium on a given level of debt would be higher for U.S.firms than for firms of the United Kingdom,everything else being equal.

A firm's cost of ___________ reflects an opportunity cost: what the existing shareholders could have earned if they had received the earnings as dividends and invested the funds themselves..

According to the text:

The lower a project's beta,the _______ is the project's _________ risk.

Assume a subsidiary is forced to borrow in excess of the MNC's optimal capital structure.Also assume that the parent company reduces its debt financing by an offsetting amount.Under this scenario,the cost of capital for the MNC overall could not have changed.

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

Multinational Financial Management: An Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships among Inflation,Interest Rates,and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

Multinational Restructuring

Country Risk Analysis

Long-Term Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

The __ the cost of capital,the _ will be a project's net present value for a project with a given set of expected cash flows.

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

To the extent that individual economies are ______ each other,net cash flows from a portfolio of subsidiaries should exhibit variability,which may reduce the probability of bankruptcy.

The cost of capital for MNCs based in the U.S.has been generally _ than MNCs based in Germany and _ than MNCs based in Japan.

The lower a project's beta,the _ is the project's ___ risk.