Question 1

It is always advantageous to use foreign debt to finance a foreign project, particularly in developing countries.

Accepted Answer

A) True 
 B)False

Question 2

According to your text, which of the following is not a factor that increases an MNC's cost of capital?

Accepted Answer

A)  higher exposure to exchange rate risk. 
B)  higher exposure to country risk. 
C)  an increase in the risk-free interest rate. 
D)  an increase in the size of the MNC. 
A)  higher exposure to exchange rate risk. 
B)  higher exposure to country risk. 
C)  an increase in the risk-free interest rate. 
D)  an increase in the size of the MNC.

Question 3

Normally, each subsidiary of an MNC will issue its own stock where it does business.

Accepted Answer

A) True 
 B)False

Question 4

According to the text, the cost of capital for an international project will:

Accepted Answer

A)  always be greater than the firm's cost of capital. 
B)  always be less than the firm's cost of capital. 
C)  always be the same as the firm's cost of capital. 
D)  none of the above 
A)  always be greater than the firm's cost of capital. 
B)  always be less than the firm's cost of capital. 
C)  always be the same as the firm's cost of capital. 
D)  none of the above

Question 5

Which of the following is not a factor that favorably affects an MNC's cost of capital, according to your text?

Accepted Answer

A)  exchange rate risk. 
B)  size. 
C)  access to international capital markets. 
D)  international diversification. 
A)  exchange rate risk. 
B)  size. 
C)  access to international capital markets. 
D)  international diversification.

Question 6

Capital asset pricing theory suggests that ____ risk of projects can be ignored and that ____ is relevant.

Accepted Answer

A)  unsystematic; unsystematic 
B)  unsystematic; systematic 
C)  systematic; unsystematic 
D)  systematic; systematic 
A)  unsystematic; unsystematic 
B)  unsystematic; systematic 
C)  systematic; unsystematic 
D)  systematic; systematic

Question 7

Country differences, such as differences in the risk-free interest rate and differences in risk premiums across countries, can cause the cost of capital to vary across countries.

Accepted Answer

A) True 
 B)False

Question 8

In general, an MNC's size, its access to international capital markets, and international diversification are unfavorable to an MNC's cost of capital.

Accepted Answer

A) True 
 B)False

Question 9

An argument for MNCs to have a debt-intensive capital structure is:

Accepted Answer

A)  they are well diversified. 
B)  they can reduce the chance of bankruptcy. 
C)  it spreads the shareholder base. 
D)  it forces subsidiaries to pay dividends to shareholders. 
A)  they are well diversified. 
B)  they can reduce the chance of bankruptcy. 
C)  it spreads the shareholder base. 
D)  it forces subsidiaries to pay dividends to shareholders.

Question 10

Werner Corporation has a target capital structure that consists of 40% debt and 60% equity. Werner can borrow at an interest rate of 10%. Also, Werner has determined its cost of equity to be 14%. Werner's tax rate is 40%. What is Werner's weighted average cost of capital?

Accepted Answer

A)  10.80% 
B)  12.40% 
C)  9.20% 
D)  None of the above 
A)  10.80% 
B)  12.40% 
C)  9.20% 
D)  None of the above

Question 11

The term "global" target capital structure for an MNC represents the MNC's capital structure:

Accepted Answer

A)  in the U.S. 
B)  relative to competitors across all countries. 
C)  where it has its largest subsidiary. 
D)  when consolidating all of its subsidiaries. 
A)  in the U.S. 
B)  relative to competitors across all countries. 
C)  where it has its largest subsidiary. 
D)  when consolidating all of its subsidiaries.

It is always advantageous to use foreign debt to finance a foreign project, particularly in developing countries.

According to your text, which of the following is not a factor that increases an MNC's cost of capital?

Normally, each subsidiary of an MNC will issue its own stock where it does business.

According to the text, the cost of capital for an international project will:

Which of the following is not a factor that favorably affects an MNC's cost of capital, according to your text?

Capital asset pricing theory suggests that risk of projects can be ignored and that is relevant.

Country differences, such as differences in the risk-free interest rate and differences in risk premiums across countries, can cause the cost of capital to vary across countries.

In general, an MNC's size, its access to international capital markets, and international diversification are unfavorable to an MNC's cost of capital.

An argument for MNCs to have a debt-intensive capital structure is:

Werner Corporation has a target capital structure that consists of 40% debt and 60% equity. Werner can borrow at an interest rate of 10%. Also, Werner has determined its cost of equity to be 14%. Werner's tax rate is 40%. What is Werner's weighted average cost of capital?

The term "global" target capital structure for an MNC represents the MNC's capital structure:

Multinational Financial Management: An Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Exam 17: Multinational Cost of Capital and Capital Structure

It is always advantageous to use foreign debt to finance a foreign project, particularly in developing countries.

According to your text, which of the following is not a factor that increases an MNC's cost of capital?

Normally, each subsidiary of an MNC will issue its own stock where it does business.

According to the text, the cost of capital for an international project will:

Which of the following is not a factor that favorably affects an MNC's cost of capital, according to your text?

Capital asset pricing theory suggests that ____ risk of projects can be ignored and that ____ is relevant.

Country differences, such as differences in the risk-free interest rate and differences in risk premiums across countries, can cause the cost of capital to vary across countries.

In general, an MNC's size, its access to international capital markets, and international diversification are unfavorable to an MNC's cost of capital.

An argument for MNCs to have a debt-intensive capital structure is:

Werner Corporation has a target capital structure that consists of 40% debt and 60% equity. Werner can borrow at an interest rate of 10%. Also, Werner has determined its cost of equity to be 14%. Werner's tax rate is 40%. What is Werner's weighted average cost of capital?

The term "global" target capital structure for an MNC represents the MNC's capital structure:

Multinational Financial Management: An Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Capital asset pricing theory suggests that risk of projects can be ignored and that is relevant.