Exam 12: Global Cost and Availability of Capital

Several years ago the Danish equity market prohibited ownership of foreign securities thus few institutional analysts outside of Denmark bothered to follow Danish equity securities. This particular fact led to market segmentation due to ________.

The international availability of capital to MNEs

Which of the following is NOT a key variable in the weighted average cost of capital (WACC) equation?

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.

A MNEs marginal cost of capital is constant for considerable ranges in its capital budget, but this statement cannot be made for most domestic firms.

Strategic alliances in business are often formed for which of the following reasons?

Theoretically, most MNEs should be in a position to support higher ________ than their domestic counterparts because their cash flows are diversified internationally.

Capital market imperfections leading to financial market segmentation include

One of the elegant beauties 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.

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

The after-tax cost of debt is found by

What are the components of the weighted average cost of capital (WACC) and how do they differ for an MNE compared to a purely domestic firm?

The authors refer to companies that have access to a ________ as MNEs, and firms without such access are identified as ________.

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

Capital market segmentation is a financial market imperfection caused mainly by ________.

Which of the following is NOT a contributing factor to the segmentation of capital markets?

A firm whose equity has a beta of 1.0

Which of the following is NOT a portfolio diversification technique used by portfolio managers?

Which of the following is NOT a contributing factor to the segmentation of capital markets?

Johnson Fuel Systems has a weighted average cost of capital of 7.35%. Estimate Johnson's cost of equity given the following information: The firm's effective tax rate is 25%, they have an equal mix of debt and equity, the required return on the market portfolio is 9%, Johnson has a before tax cost of debt of 6%, and the risk-free rate of return is 3%.