Exam 16: Foreign Direct Investment and Cross-Border Acquisitions

Assume that A-Plus Corporation is a leveraged company with a marginal income tax rate of 30%,an average income tax rate of 25%,and before tax-cost of borrowing of 5%.The firm's domestic beta is 1.4 and its world market beta is 0.8.The domestic market return is 12% and the world market return is 14%.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 integrated.

In the Capital Asset Pricing Model (CAPM),the term Beta, ,is:

Assume that XYZ Corporation is a leveraged company with a cost of capital of 10%.The before-tax cost of borrowing is 5% and the marginal tax rate is 30%. a)If XYZ's debt-to-total-market-value ratio is 40%,what is its weighted average cost of capital,WACC? b)Calculate the debt-to-total-market-value ratio that would result in XYZ having a weighted average cost of capital of 9.3%.

Which of the following statements is correct?

The cost of equity capital is: