Question 1

Calculate the debt-to-total-market-value ratio that would result in XYZ having a weighted average cost of capital of 9.3%.

Accepted Answer

A) 35% 
B) 40% 
C) 45% 
D) 50% 
A) 35% 
B) 40% 
C) 45% 
D) 50% D

Question 2

What are the alternative financial structures for a subsidiary?
 Which of the alternatives is the best?

Accepted Answer

The three main alternatives for the financial structure of a subsidiary are (1)conform to the parent's norms,(2)conform to the local norms of the country where the subsidiary operates,or (3)vary judiciously to capitalize on opportunities to lower taxes,reduce financing costs and risks,and take advantage of various market imperfections.The third approach fits best with the overall goals of the firm to minimize the worldwide cost of capital and risks.

Question 3

Assume that ABC Corporation is a leveraged company with the following information.Its marginal income tax rate is 35%,its average income tax rate is 25%,and its before tax-cost of borrowing is 6%.The firm's domestic beta is 1.2 and its world market beta is 1.The domestic market return is 10% and the world market return is 11%.The risk-free rate is 4%.The firm's debt-to-equity ratio is 1:
3.Determine the firm's weighted average cost of capital if capital markets are segmented.

Accepted Answer

cost of equity: Ki = 0.04 + 1.2(.1   .04)
= .112 or 11.2%
weighted average cost of capital:
K = (1   .35)*.06*.25 + .112*.75
= 0.09375 or 9.34%

Question 4

Assume that the risk-free rate of return is 4%,and the expected return on the market portfolio is 10%.If the systematic risk inherent in the stock of ABC Corporation is 1.80,using the Capital Asset Pricing Model (CAPM)calculate the expected return of ABC.

Accepted Answer

A) 14.0% 
B) 14.8% 
C) 16.0% 
D) 16.8% 
A) 14.0% 
B) 14.8% 
C) 16.0% 
D) 16.8%

Question 5

The cost of capital is:

Accepted Answer

A) the minimum rate of return an investment project must generate in order to pay its financing costs 
B) the minimum rate of return an investment project must generate in order to pay its financing costs plus a reasonable profit 
C) the maximum rate of return an investment project must generate in order to pay its financing costs 
D) the maximum rate of return an investment project must generate in order to pay its financing costs plus a reasonable profit 
A) the minimum rate of return an investment project must generate in order to pay its financing costs 
B) the minimum rate of return an investment project must generate in order to pay its financing costs plus a reasonable profit 
C) the maximum rate of return an investment project must generate in order to pay its financing costs 
D) the maximum rate of return an investment project must generate in order to pay its financing costs plus a reasonable profit

Question 6

Capital structure refers to all of the following except:

Accepted Answer

A) Right-hand side the corporate balance sheet 
B) A description of how the company is financed 
C) The debt-equity ratio 
D) What assets the firm has 
A) Right-hand side the corporate balance sheet 
B) A description of how the company is financed 
C) The debt-equity ratio 
D) What assets the firm has

Question 7

What are the potential benefits of cross-listing shares on a foreign stock exchange?

Accepted Answer

The potential benefits are: (1)an increa

Question 8

"When in Rome do as the Romans do" best describes which approach to a subsidiary's financial structure?

Accepted Answer

A) conform to the parent company's norm 
B) conform to the local norm of the country where the subsidiary operates 
C) vary judiciously 
D) vary randomly 
A) conform to the parent company's norm 
B) conform to the local norm of the country where the subsidiary operates 
C) vary judiciously 
D) vary randomly

Question 9

Which of the following factors is not important when a firm chooses its subsidiary's financial structure?

Accepted Answer

A) Corporate tax rates 
B) Value-added taxes 
C) Political risk 
D) Cost of capital 
A) Corporate tax rates 
B) Value-added taxes 
C) Political risk 
D) Cost of capital

Question 10

For a firm that has both debt and equity in its capital structure,its financing cost can be represented by the weighted average cost of capital that is computed by:

Accepted Answer

A) weighing the pre-tax borrowing cost of the firm and the cost of equity capital, using the debt as the weight 
B) weighing the after-tax borrowing cost of the firm and the cost of equity capital, using the capital structure ratio as the weight 
C)    
D) b and c 
A) weighing the pre-tax borrowing cost of the firm and the cost of equity capital, using the debt as the weight 
B) weighing the after-tax borrowing cost of the firm and the cost of equity capital, using the capital structure ratio as the weight 
C)    
D) b and c

Question 11

A major factor in determining the optimal capital structure is

Accepted Answer

A) the trade-off between the interest rate costs of debt and the possible bankruptcy costs associated with equity 
B) the trade-off between the tax advantage of debt and the possible bankruptcy costs associated with equity 
C) the trade-off between the tax advantage of debt and the possible bankruptcy costs associated with debt 
D) the trade-off between the interest rate costs of equity and the possible bankruptcy costs associated with equity 
A) the trade-off between the interest rate costs of debt and the possible bankruptcy costs associated with equity 
B) the trade-off between the tax advantage of debt and the possible bankruptcy costs associated with equity 
C) the trade-off between the tax advantage of debt and the possible bankruptcy costs associated with debt 
D) the trade-off between the interest rate costs of equity and the possible bankruptcy costs associated with equity

Question 12

If ABC's debt-to-equity ratio is 1: 1,then its weighted average cost of capital,K,is:

Accepted Answer

A) 5% 
B) 5.75% 
C) 6.75% 
D) 10% 
A) 5% 
B) 5.75% 
C) 6.75% 
D) 10%

Question 13

Which one of the following is not an approach to determine a subsidiary's financial structure:

Accepted Answer

A) conform to the parent company's norm 
B) conform to the local norm of the country where the subsidiary operates 
C) vary judiciously 
D) vary randomly 
A) conform to the parent company's norm 
B) conform to the local norm of the country where the subsidiary operates 
C) vary judiciously 
D) vary randomly

Question 14

If XYZ's debt-to-total-market-value ratio is 40%,then its weighted average cost of capital,K,is:

Accepted Answer

A) 8% 
B) 9% 
C) 10% 
D) 12% 
A) 8% 
B) 9% 
C) 10% 
D) 12%

Question 15

Calculate the debt-to-total-market-value ratio that would result in ABC having a weighted average cost of capital of 7.5%.

Accepted Answer

A) 28% 
B) 38% 
C) 46% 
D) 50% 
A) 28% 
B) 38% 
C) 46% 
D) 50%

Question 16

Which of the following statements is not true about the pricing-to-market phenomenon?

Accepted Answer

A) It is due to legal restrictions imposed on foreigners 
B) It may lead to dual pricing 
C) It occurs only when the restrictions are binding 
D) Foreigners will always pay a premium for shares if legal restrictions are imposed on foreigners 
A) It is due to legal restrictions imposed on foreigners 
B) It may lead to dual pricing 
C) It occurs only when the restrictions are binding 
D) Foreigners will always pay a premium for shares if legal restrictions are imposed on foreigners

Question 17

Assume that the risk-free rate of return is 4%,and the expected return on the market portfolio is 10%.If the expected return of ABC is 12% the firm's beta calculate using the Capital Asset Pricing Model (CAPM).

Accepted Answer

A) 1 
B) 1.25 
C) 1.33 
D) 1.5 
A) 1 
B) 1.25 
C) 1.33 
D) 1.5

Question 18

Which of the following represents all the potential benefits of the cross-border listings of stocks?

Accepted Answer

A) (i), (ii), and (iii) 
B) (ii), (iv), and (vi) 
C) (i), (iii), (v), and (vii) 
D) (iv), (v), (vi), and (vii) 
A) (i), (ii), and (iii) 
B) (ii), (iv), and (vi) 
C) (i), (iii), (v), and (vii) 
D) (iv), (v), (vi), and (vii)

Question 19

Systematic risk refers to:

Accepted Answer

A) the diversifiable (company specific) risk of an asset 
B) the nondiversifiable market risk of an asset 
C) economic and political risk 
D) the risk that can be hedged 
A) the diversifiable (company specific) risk of an asset 
B) the nondiversifiable market risk of an asset 
C) economic and political risk 
D) the risk that can be hedged

Question 20

Which of the following represents all the potential costs of the cross-border listings of stocks?

Accepted Answer

A) (i), (ii), and (iii) 
B) (ii), (iv), and (vi) 
C) (i), (iii), (v), and (vii) 
D) (iv), (v), (vi), and (vii) 
A) (i), (ii), and (iii) 
B) (ii), (iv), and (vi) 
C) (i), (iii), (v), and (vii) 
D) (iv), (v), (vi), and (vii)

Calculate the debt-to-total-market-value ratio that would result in XYZ having a weighted average cost of capital of 9.3%.

What are the alternative financial structures for a subsidiary? Which of the alternatives is the best?

Assume that the risk-free rate of return is 4%,and the expected return on the market portfolio is 10%.If the systematic risk inherent in the stock of ABC Corporation is 1.80,using the Capital Asset Pricing Model (CAPM)calculate the expected return of ABC.

The cost of capital is:

Capital structure refers to all of the following except:

What are the potential benefits of cross-listing shares on a foreign stock exchange?

"When in Rome do as the Romans do" best describes which approach to a subsidiary's financial structure?

Which of the following factors is not important when a firm chooses its subsidiary's financial structure?

For a firm that has both debt and equity in its capital structure,its financing cost can be represented by the weighted average cost of capital that is computed by:

A major factor in determining the optimal capital structure is

If ABC's debt-to-equity ratio is 1: 1,then its weighted average cost of capital,K,is:

Which one of the following is not an approach to determine a subsidiary's financial structure:

If XYZ's debt-to-total-market-value ratio is 40%,then its weighted average cost of capital,K,is:

Calculate the debt-to-total-market-value ratio that would result in ABC having a weighted average cost of capital of 7.5%.

Which of the following statements is not true about the pricing-to-market phenomenon?

Assume that the risk-free rate of return is 4%,and the expected return on the market portfolio is 10%.If the expected return of ABC is 12% the firm's beta calculate using the Capital Asset Pricing Model (CAPM).

Which of the following represents all the potential benefits of the cross-border listings of stocks?

Systematic risk refers to:

Which of the following represents all the potential costs of the cross-border listings of stocks?

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters

Exam 16: Foreign Direct Investment and Cross-Border Acquisitions

Calculate the debt-to-total-market-value ratio that would result in XYZ having a weighted average cost of capital of 9.3%.

What are the alternative financial structures for a subsidiary? Which of the alternatives is the best?

Assume that the risk-free rate of return is 4%,and the expected return on the market portfolio is 10%.If the systematic risk inherent in the stock of ABC Corporation is 1.80,using the Capital Asset Pricing Model (CAPM)calculate the expected return of ABC.

The cost of capital is:

Capital structure refers to all of the following except:

What are the potential benefits of cross-listing shares on a foreign stock exchange?

"When in Rome do as the Romans do" best describes which approach to a subsidiary's financial structure?

Which of the following factors is not important when a firm chooses its subsidiary's financial structure?

For a firm that has both debt and equity in its capital structure,its financing cost can be represented by the weighted average cost of capital that is computed by:

A major factor in determining the optimal capital structure is

If ABC's debt-to-equity ratio is 1: 1,then its weighted average cost of capital,K,is:

Which one of the following is not an approach to determine a subsidiary's financial structure:

If XYZ's debt-to-total-market-value ratio is 40%,then its weighted average cost of capital,K,is:

Calculate the debt-to-total-market-value ratio that would result in ABC having a weighted average cost of capital of 7.5%.

Which of the following statements is not true about the pricing-to-market phenomenon?

Assume that the risk-free rate of return is 4%,and the expected return on the market portfolio is 10%.If the expected return of ABC is 12% the firm's beta calculate using the Capital Asset Pricing Model (CAPM).

Which of the following represents all the potential benefits of the cross-border listings of stocks?

Systematic risk refers to:

Which of the following represents all the potential costs of the cross-border listings of stocks?

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters