Exam 17: Multinational Cost of Capital and Capital Structure

Assume that the riskfree interest rate in the U.S.is the same as that in Country M.  Assume that the government of Country M is more likely to rescue local firms that experience financial problems.  Other things being equal,Country M's firms are likely to use a _______ degree of financial leverage than U.S.firms.  If a firm based in Country M had the same degree of financial leverage and the same operating characteristics as a U.S.firm,its cost of capital would be _______ than that of the U.S.firm.

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

The capital asset pricing theory is based on the premise that:

When an MNC's firm's cost of capital rises,it would be _______ likely to divest an existing project,other things held constant.

Country differences,such as differences in the risk-free interest rate and differences in risk premiums across countries,can cause the cost of capital to vary across countries.

Other things being equal,the financial leverage of MNCs will be higher if the governments of their home countries are _______ likely to rescue them (in the event of failure),and if their home countries are _______ likely to experience a recession.

When an MNC is considering financing a portion of a foreign project within the foreign country,the best method to account for a foreign project's risk is to:

According to the CAPM,the required rate of return on stock is a positive function of all of the following,except:

Although an MNC can adjust either the discount rate or the cash flows to account for a project's risk,there is no perfect formula to adjust for a project's unique risk.

According to the text,MNCs:

Based on the factors that influence a country's cost of capital,the cost of capital in less developed countries is likely to be _______ than that of the U.S.and _______ than that of Japan.

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.

Other things being equal,countries with relatively _______ populations and _______ inflation are more likely to have a low cost of capital.

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

Normally,an MNC will issue stock in all of the countries where it does business.

Which of the following is not a reason the cost of debt can vary across countries

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

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

Which of the following factors is not expected to generally have a favorable impact on the firm's cost of capital according to the text

MNC Corporation has a beta of 2.0.The risk-free rate of interest is 5%,and the return on the stock market overall is expected to be 13%.What is the required rate of return on MNC stock