Question 1

The weighted average cost of capital (WACC)is

Accepted Answer

A) the required rate of return for all of a firm's capital investment projects. 
B) the required rate of return for a firm's average risk projects. 
C) not applicable for use by MNE. 
D) equal to 13%. 
A) the required rate of return for all of a firm's capital investment projects. 
B) the required rate of return for a firm's average risk projects. 
C) not applicable for use by MNE. 
D) equal to 13%.

Question 2

One of the distinct features of international equity markets is that over the last 100 or so years,the average market risk premium is almost identical across major industrial countries.

Accepted Answer

A) True 
 B)False

Question 3

Capital market imperfections leading to financial market segmentation include

Accepted Answer

A) political risks 
B) corporate governance differences 
C) regulatory barriers 
D) All of the above. 
A) political risks 
B) corporate governance differences 
C) regulatory barriers 
D) All of the above.

Question 4

If a firm lies within a country with ________ or ________ domestic capital markets,it can achieve lower global cost and greater availability of capital with a properly designed and implemented strategy to participate in international capital markets.

Accepted Answer

A) liquid; segmented 
B) liquid; large 
C) illiquid; segmented 
D) large; illiquid 
A) liquid; segmented 
B) liquid; large 
C) illiquid; segmented 
D) large; illiquid

Question 5

Relatively high costs of capital are more likely to occur in ________.

Accepted Answer

A) highly illiquid domestic securities markets 
B) highly liquid domestic securities markets 
C) unsegmented domestic securities markets 
D) none of the above 
A) highly illiquid domestic securities markets 
B) highly liquid domestic securities markets 
C) unsegmented domestic securities markets 
D) none of the above

Question 6

According to your authors,diversifying cash flows internationally may help MNEs reduce the variability of cash flows because

Accepted Answer

A) of a lack of competition among international firms. 
B) of an offset to cash flow variability caused by exchange rate variability. 
C) returns are not perfectly correlated between countries. 
D) none of the above. 
A) of a lack of competition among international firms. 
B) of an offset to cash flow variability caused by exchange rate variability. 
C) returns are not perfectly correlated between countries. 
D) none of the above.

Question 7

The international availability of capital to MNEs

Accepted Answer

A) allows the firm to avoid income taxes. 
B) allows the firm to shift tax payments to other counties. 
C) allows the firm to lower their cost of equity, relative to domestic firms. 
D) none of the above. 
A) allows the firm to avoid income taxes. 
B) allows the firm to shift tax payments to other counties. 
C) allows the firm to lower their cost of equity, relative to domestic firms. 
D) none of the above.

Question 8

Capital market imperfections leading to financial market segmentation include

Accepted Answer

A) asymmetric information between domestic and foreign-based investors 
B) high securities transaction costs 
C) foreign exchange risks 
D) All of the above. 
A) asymmetric information between domestic and foreign-based investors 
B) high securities transaction costs 
C) foreign exchange risks 
D) All of the above.

Question 9

Reasons that firms may find themselves with relatively high costs of capital include:

Accepted Answer

A) The firms reside in emerging countries with undeveloped capital markets. 
B) The firms are too small to easily gain access to their own national securities market. 
C) The firms are family owned and they choose not to access public markets and lose control of the firm. 
D) All of the above. 
A) The firms reside in emerging countries with undeveloped capital markets. 
B) The firms are too small to easily gain access to their own national securities market. 
C) The firms are family owned and they choose not to access public markets and lose control of the firm. 
D) All of the above.

Question 10

Domestic firms rely much more heavily on short and intermediate debt,which lie at the low cost end of the yield curve,than do MNEs.

Accepted Answer

A) True 
 B)False

Question 11

Ready Supply Co.has a cost of debt of 8%.The risk-free rate of interest is 3% and the expected return on the market portfolio is 10%.If the firm has a beta of 0.90 and an effective tax rate of 30% with a capital structure that is 40% debt and 60% equity,what is the firm's weighted average cost of capital?

Accepted Answer

A) 7.82% 
B) 9.30% 
C) 5.60% 
D) 8.00% 
A) 7.82% 
B) 9.30% 
C) 5.60% 
D) 8.00%

Question 12

If a firm's expected returns are more volatile than the expected return for the market portfolio,it will have a beta less than 1.0.

Accepted Answer

A) True 
 B)False

Question 13

If a company fails to accurately predict it's cost of equity,then

Accepted Answer

A) the firm's wacc will also be inaccurate. 
B) the firm may not be using the proper interest rate to estimate NPV. 
C) the firm my incorrectly accept or reject projects based on decisions made using the cost of capital computed with an incorrect cost of equity. 
D) all of the above are true. 
A) the firm's wacc will also be inaccurate. 
B) the firm may not be using the proper interest rate to estimate NPV. 
C) the firm my incorrectly accept or reject projects based on decisions made using the cost of capital computed with an incorrect cost of equity. 
D) all of the above are true.

Question 14

LipTea Incorporated purchases raw materials and has processing plants around the world. The firm has an average pre-tax cost of debt of 8%,an average tax rate of 40%,and an international equity beta of 1.2.The risk-free rate of return is anticipated to be 4% and the return to the international market portfolio to be 12%. If the firm finances 40% with debt and 60% with equity,what is the after-tax WACC?

Accepted Answer

A) 10.08% 
B) 12.96% 
C) 11.36% 
D) 10.50% 
A) 10.08% 
B) 12.96% 
C) 11.36% 
D) 10.50%

Question 15

Which of the following is generally unnecessary in measuring the cost of debt?

Accepted Answer

A) a forecast of future interest rates 
B) the proportions of the various classes of debt a firm proposes to use 
C) the corporate income tax rate 
D) All of the above are necessary for measuring the cost of debt. 
A) a forecast of future interest rates 
B) the proportions of the various classes of debt a firm proposes to use 
C) the corporate income tax rate 
D) All of the above are necessary for measuring the cost of debt.

Question 16

Internationally diversified portfolios often have a lower rate of return and almost always have a higher level of portfolio risk than their domestic counterparts.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is NOT true regarding MNEs when compared to purely domestic firms?

Accepted Answer

A) MNEs tend to rely more on short and intermediate term debt. 
B) MNEs have greater foreign exchange risk. 
C) MNEs have greater costs of asymmetric information. 
D) MNEs have higher agency costs. 
A) MNEs tend to rely more on short and intermediate term debt. 
B) MNEs have greater foreign exchange risk. 
C) MNEs have greater costs of asymmetric information. 
D) MNEs have higher agency costs.

The weighted average cost of capital (WACC)is

One of the distinct features of international equity markets is that over the last 100 or so years,the average market risk premium is almost identical across major industrial countries.

Capital market imperfections leading to financial market segmentation include

If a firm lies within a country with or domestic capital markets,it can achieve lower global cost and greater availability of capital with a properly designed and implemented strategy to participate in international capital markets.

Relatively high costs of capital are more likely to occur in ________.

According to your authors,diversifying cash flows internationally may help MNEs reduce the variability of cash flows because

The international availability of capital to MNEs

Capital market imperfections leading to financial market segmentation include

Reasons that firms may find themselves with relatively high costs of capital include:

Domestic firms rely much more heavily on short and intermediate debt,which lie at the low cost end of the yield curve,than do MNEs.

If a firm's expected returns are more volatile than the expected return for the market portfolio,it will have a beta less than 1.0.

If a company fails to accurately predict it's cost of equity,then

Which of the following is generally unnecessary in measuring the cost of debt?

Internationally diversified portfolios often have a lower rate of return and almost always have a higher level of portfolio risk than their domestic counterparts.

Which of the following statements is NOT true regarding MNEs when compared to purely domestic firms?

Current Multinational Challenges and the Global Economy

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

Current Multinational Financial Challenges: the Credit Crisis of 2007 - 2009

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction and Translation Exposure

Operating Exposure

Sourcing Equity and Debt Globally

Multinational Tax Management

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

International Portfolio Theory and Diversification

Working Capital Management

International Trade Finance

Filters

Exam 12: The Global Cost and Availability of Capital

The weighted average cost of capital (WACC)is

One of the distinct features of international equity markets is that over the last 100 or so years,the average market risk premium is almost identical across major industrial countries.

Capital market imperfections leading to financial market segmentation include

If a firm lies within a country with ________ or ________ domestic capital markets,it can achieve lower global cost and greater availability of capital with a properly designed and implemented strategy to participate in international capital markets.

Relatively high costs of capital are more likely to occur in ________.

According to your authors,diversifying cash flows internationally may help MNEs reduce the variability of cash flows because

The international availability of capital to MNEs

Capital market imperfections leading to financial market segmentation include

Reasons that firms may find themselves with relatively high costs of capital include:

Domestic firms rely much more heavily on short and intermediate debt,which lie at the low cost end of the yield curve,than do MNEs.

If a firm's expected returns are more volatile than the expected return for the market portfolio,it will have a beta less than 1.0.

If a company fails to accurately predict it's cost of equity,then

Which of the following is generally unnecessary in measuring the cost of debt?

Internationally diversified portfolios often have a lower rate of return and almost always have a higher level of portfolio risk than their domestic counterparts.

Which of the following statements is NOT true regarding MNEs when compared to purely domestic firms?

Current Multinational Challenges and the Global Economy

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

Current Multinational Financial Challenges: the Credit Crisis of 2007 - 2009

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction and Translation Exposure

Operating Exposure

Sourcing Equity and Debt Globally

Multinational Tax Management

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

International Portfolio Theory and Diversification

Working Capital Management

International Trade Finance

Filters

If a firm lies within a country with or domestic capital markets,it can achieve lower global cost and greater availability of capital with a properly designed and implemented strategy to participate in international capital markets.