Question 1

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 2

LipTea Incorporated purchases raw materials and has processing plants around the world. They also have an international market for their product. Because of their presence in so many countries LipTea has the ability to raise capital around the world in several different markets. LipTea is truly an MNE. If the firm has an average pre-tax cost of debt of 8%, a cost of equity of 13%, and an average tax rate of 40%, what is their after-tax cost of debt?

Accepted Answer

A)  3.2% 
B)  8.0% 
C)  4.8% 
D)  10.5% 
A)  3.2% 
B)  8.0% 
C)  4.8% 
D)  10.5%

Question 3

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

Accepted Answer

A)  the market value of equity 
B)  the market value of debt 
C)  the risk-free rate of return 
D)  the marginal tax rate 
A)  the market value of equity 
B)  the market value of debt 
C)  the risk-free rate of return 
D)  the marginal tax rate

Question 4

Until 1981 Danish equity securities were taxed at a capital gains rate of 50% for securities held for over two years, and at a speculative gains rate of 75% for securities held for under two years. This led to market segmentation caused by

Accepted Answer

A)  taxation. 
B)  political risk. 
C)  asymmetric information. 
D)  financial risk. 
A)  taxation. 
B)  political risk. 
C)  asymmetric information. 
D)  financial risk.

Question 5

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 6

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 7

Other things equal, a firm that must obtain its long-term debt and equity in a highly illiquid domestic securities market will probably have a

Accepted Answer

A)  relatively low cost of capital. 
B)  relatively high cost of capital. 
C)  relatively average cost of capital. 
D)  cost of capital that we cannot estimate from this question. 
A)  relatively low cost of capital. 
B)  relatively high cost of capital. 
C)  relatively average cost of capital. 
D)  cost of capital that we cannot estimate from this question.

Question 8

Empirical studies indicate that MNEs have higher costs of capital than purely domestic firms. This could be due to higher levels of

Accepted Answer

A)  political risk. 
B)  exchange rate risk. 
C)  agency costs. 
D)  all of the above 
A)  political risk. 
B)  exchange rate risk. 
C)  agency costs. 
D)  all of the above

Question 9

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 10

Which of the following does NOT constitute a benefit to the investor of diversifying internationally?

Accepted Answer

A)  the relatively low degree of correlation between the world's stock markets 
B)  the increase in the expected return from an internationally diversified investment 
C)  a lower total level of nondiversifiable risk 
D)  All of the above are benefits of international diversification. 
A)  the relatively low degree of correlation between the world's stock markets 
B)  the increase in the expected return from an internationally diversified investment 
C)  a lower total level of nondiversifiable risk 
D)  All of the above are benefits of international diversification.

Question 11

The optimal financial structure of multinational firms could differ from that of domestic firms because of

Accepted Answer

A)  political pressures on the host country. 
B)  the greater availability of capital to multinational firms. 
C)  the ability of multinational firms to diversify their cash flows internationally. 
D)  all of the above. 
A)  political pressures on the host country. 
B)  the greater availability of capital to multinational firms. 
C)  the ability of multinational firms to diversify their cash flows internationally. 
D)  all of the above.

Question 12

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 13

Reasons that firms may find themselves with relatively high costs of capital include which of the following?

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 14

Which of the following is NOT a key variable in the equation for the capital asset pricing model?

Accepted Answer

A)  the risk-free rate of interest 
B)  the expected rate of return on the market portfolio 
C)  the marginal tax rate 
D)  All are important components of the CAPM. 
A)  the risk-free rate of interest 
B)  the expected rate of return on the market portfolio 
C)  the marginal tax rate 
D)  All are important components of the CAPM.

Question 15

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.

Question 16

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 17

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?

Accepted Answer

The WACC considers the proportion or wei

Question 18

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 19

The capital asset pricing model (CAPM) is an approach

Accepted Answer

A)  to determine the price of equity capital. 
B)  used by marketers to determine the price of saleable product. 
C)  can be applied only to domestic markets. 
D)  none of the above. 
A)  to determine the price of equity capital. 
B)  used by marketers to determine the price of saleable product. 
C)  can be applied only to domestic markets. 
D)  none of the above.

Question 20

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

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

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

Until 1981 Danish equity securities were taxed at a capital gains rate of 50% for securities held for over two years, and at a speculative gains rate of 75% for securities held for under two years. This led to market segmentation caused by

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.

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.

Other things equal, a firm that must obtain its long-term debt and equity in a highly illiquid domestic securities market will probably have a

Empirical studies indicate that MNEs have higher costs of capital than purely domestic firms. This could be due to higher levels of

The weighted average cost of capital (WACC) is

Which of the following does NOT constitute a benefit to the investor of diversifying internationally?

The optimal financial structure of multinational firms could differ from that of domestic firms because of

The international availability of capital to MNEs

Reasons that firms may find themselves with relatively high costs of capital include which of the following?

Which of the following is NOT a key variable in the equation for the capital asset pricing model?

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

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.

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?

Capital market imperfections leading to financial market segmentation include

The capital asset pricing model (CAPM) is an approach

Relatively high costs of capital are more likely to occur in

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Translation Exposure

Operating Exposure

Raising Equity and Debt Globally

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

Exam 12: The Global Cost and Availability of Capital

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

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

Until 1981 Danish equity securities were taxed at a capital gains rate of 50% for securities held for over two years, and at a speculative gains rate of 75% for securities held for under two years. This led to market segmentation caused by

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.

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.

Other things equal, a firm that must obtain its long-term debt and equity in a highly illiquid domestic securities market will probably have a

Empirical studies indicate that MNEs have higher costs of capital than purely domestic firms. This could be due to higher levels of

The weighted average cost of capital (WACC) is

Which of the following does NOT constitute a benefit to the investor of diversifying internationally?

The optimal financial structure of multinational firms could differ from that of domestic firms because of

The international availability of capital to MNEs

Reasons that firms may find themselves with relatively high costs of capital include which of the following?

Which of the following is NOT a key variable in the equation for the capital asset pricing model?

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

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.

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?

Capital market imperfections leading to financial market segmentation include

The capital asset pricing model (CAPM) is an approach

Relatively high costs of capital are more likely to occur in

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Translation Exposure

Operating Exposure

Raising Equity and Debt Globally

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters