Deck 17: International Capital Structure and the Cost of Capital

Question 1

Solve for the weighted average cost of capital. $\begin{array}{lcl}16.00 \%&=&K_{1}&=&\text { cost of equity capital for a leveraged firm }\\5 / 6&=&\lambda&=&\text { debt-to-total-market-value ratio }\\8.0 \%&=&i&=&\text { before-tax borrowing cost }\\40.0 \%&=&\tau&=&\text { marginal corporate income tax rate }\end{array}$

A)7.00 percent
B)6.89 percent
C)6.73 percent
D)6.67 percent

Answer 1

6.67 percent

Question 2

Solve for the weighted average cost of capital. $\begin{array}{lcl}11.20 \%&=&K_{1}&=&\text { cost of equity capital for a leveraged firm }\\1 / 2&=&\lambda&=&\text { debt-to-total-market-value ratio }\\8.0 \%&=&i&=&\text { before-tax borrowing cost }\\40.0 \%&=&\tau&=&\text { marginal corporate income tax rate }\end{array}$

A)8.67 percent
B)8.00 percent
C)7.60 percent
D)7.33 percent

Answer 2

8.00 percent

Question 3

Solve for the weighted average cost of capital. $\begin{array}{lcl}11.80 \%&=&K_{1}&=&\text { cost of equity capital for a leveraged firm }\\3 / 5&=&\lambda&=&\text { debt-to-total-market-value ratio }\\8.0 \%&=&i&=&\text { before-tax borrowing cost }\\40.0 \%&=&\tau&=&\text { marginal corporate income tax rate }\end{array}$

A)8.67 percent
B)8.00 percent
C)7.60 percent
D)7.33 percent

Answer 3

7.60 percent

Question 4

Solve for the weighted average cost of capital. $\begin{array}{lcl}12.40 \%&=&K_{1}&=&\text { cost of equity capital for a leveraged firm }\\2 / 3&=&\lambda&=&\text { debt-to-total-market-value ratio }\\8.0 \%&=&i&=&\text { before-tax borrowing cost }\\40.0 \%&=&\tau&=&\text { marginal corporate income tax rate }\end{array}$

A)8.67 percent
B)8.00 percent
C)7.60 percent
D)7.33 percent

Question 5

Solve for the weighted average cost of capital. $\begin{array}{lcl}10.60 \%&=&K_{1}&=&\text { cost of equity capital for a leveraged firm }\\1 / 3&=&\lambda&=&\text { debt-to-total-market-value ratio }\\8.0 \%&=&i&=&\text { before-tax borrowing cost }\\40.0 \%&=&\tau&=&\text { marginal corporate income tax rate }\end{array}$

A)8.67 percent
B)8.00 percent
C)7.60 percent
D)7.33 percent

Question 6

At the optimal capital structure,

A)K = (1 − λ)K_l + λ(1 − τ)i will be minimized.
B)The debt-equity ratio will be equal to the debt-to-value ratio.
C)K = (1 − λ)K_l + λ(1 − τ)i will be maximized.
D)none of the options

Question 7

Solve for the weighted average cost of capital. $\begin{array}{lcl}14.20 \%&=&K_{1}&=&\text { cost of equity capital for a leveraged firm }\\7 / 9&=&\lambda&=&\text { debt-to-total-market-value ratio }\\8.0 \%&=&i&=&\text { before-tax borrowing cost }\\40.0 \%&=&\tau&=&\text { marginal corporate income tax rate }\end{array}$

A)7.00 percent
B)6.89 percent
C)6.73 percent
D)6.67 percent

Question 8

In the notation of the book,K = (1 − λ)K_l + λ(1 − τ)i ; which of the following is correct?

A)The debt-to-equity ratio is λ
B)The cost of equity capital for a levered firm is K_{l C)} The after-tax cost of debt capital is i
D)all of the options

Question 9

The cost of capital is

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 10

In the notation of the book,K = (1 − λ)K_l + λ(1 − τ)i ; which of the following is correct?

A)The weighted average cost of capital for a levered firm is K
B)The tax rate is τ
C)The after-tax cost of debt capital is i
D)all of the options

Question 11

In the notation of the book,K = (1 − λ)K_l + λ(1 − τ)i Which of these is correct?

A)The debt-to-equity ratio is λ
B)The tax rate is τ
C)The after-tax cost of debt capital is i
D)all of the options

Question 12

In the notation of the book,K = (1 − λ)K_l + λ(1 − τ)i ; which of the following is correct?

A)The debt-to-total market value ratio is λ
B)The tax rate is i
C)The after-tax cost of debt capital is i
D)all of the options

Question 13

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)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 debt as the weight.
C)K = (1 − λ)K_l + λ (1 − τ)i where: K = weighted average cost of capital K_l = cost of equity capital for a leveraged firm i = before-tax borrowing cost τ = marginal corporate income tax rate λ = debt-to-total-market-value ratio
D)weighing the after-tax borrowing cost of the firm and the cost of equity capital,using the debt as the weight.Additionally,this may be expressed as K = (1 − λ)K_l + λ(1 − τ)i where: K = weighted average cost of capital K_l = cost of equity capital for a leveraged firm i = before-tax borrowing cost τ = marginal corporate income tax rate λ = debt-to-total-market-value ratio

Question 14

Solve for the weighted average cost of capital. $\begin{array}{lcl}15.40 \%&=&K_{1}&=&\text { cost of equity capital for a leveraged firm }\\9 / 11&=&\lambda&=&\text { debt-to-total-market-value ratio }\\8.0 \%&=&i&=&\text { before-tax borrowing cost }\\40.0 \%&=&\tau&=&\text { marginal corporate income tax rate }\end{array}$

A)7.00 percent
B)6.89 percent
C)6.73 percent
D)6.67 percent

Question 15

Solve for the weighted average cost of capital. $\begin{aligned}10.60 \% &=K_{1} \\1 / 3 &=\lambda \\8.0 \% &=i \\40.0 \% 0 &=\tau\end{aligned}$

A)8.67 percent
B)8.00 percent
C)7.60 percent
D)7.33 percent

Question 16

In the notation of the book,K = (1 − λ)K_l + λ(1 − τ)i ; which of the following is correct?

A)The debt-to-equity ratio is λ
B)The cost of equity capital for a levered firm is K
C)The pre-tax cost of debt capital is i
D)all of the options

Question 17

Solve for the weighted average cost of capital. $\begin{aligned}11.20 \% &=K_{1} \\1 / 2 &=\lambda \\8.0 \% &=i \\40.0 \% 0 &=\tau\end{aligned}$

A)8.67 percent
B)8.00 percent
C)7.60 percent
D)7.33 percent

Question 18

Solve for the weighted average cost of capital. $\begin{array}{lcl}13.00 \%&=&K_{1}&=&\text { cost of equity capital for a leveraged firm }\\5 / 7&=&\lambda&=&\text { debt-to-total-market-value ratio }\\8.0 \%&=&i&=&\text { before-tax borrowing cost }\\40.0 \%&=&\tau&=&\text { marginal corporate income tax rate }\end{array}$

A)8.67 percent
B)7.60 percent
C)7.33 percent
D)7.14 percent

Question 19

Solve for the weighted average cost of capital. $\begin{array}{lcl}17.20 \%&=&K_{1}&=&\text { cost of equity capital for a leveraged firm }\\6/ 7&=&\lambda&=&\text { debt-to-total-market-value ratio }\\8.0 \%&=&i&=&\text { before-tax borrowing cost }\\40.0 \%&=&\tau&=&\text { marginal corporate income tax rate }\end{array}$

A)7.00 percent
B)6.89 percent
C)6.73 percent
D)6.57 percent

Question 20

Solve for the weighted average cost of capital. $\begin{array}{lcl}13.60 \%&=&K_{1}&=&\text { cost of equity capital for a leveraged firm }\\3 / 4&=&\lambda&=&\text { debt-to-total-market-value ratio }\\8.0 \%&=&i&=&\text { before-tax borrowing cost }\\40.0 \%&=&\tau&=&\text { marginal corporate income tax rate }\end{array}$

A)7.00 percent
B)6.89 percent
C)6.73 percent
D)6.67 percent

Question 21

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 1.

A)1/3
B)1/2
C)3/5
D)2/3

Question 22

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 2.

A)1/3
B)1/2
C)3/5
D)2/3

Question 23

Solve for the weighted average cost of capital. $\begin{aligned}14.20 \% &=K_{1} \\7 / 9 &=\lambda \\8.0 \% &=i \\40.0 \% 0 &=\tau\end{aligned}$

A)7.00 percent
B)6.89 percent
C)6.73 percent
D)6.67 percent

Question 24

Solve for the weighted average cost of capital. $\begin{aligned}11.80 \% &=K_{1} \\3 / 5 &=\lambda \\8.0 \% &=i \\40.0 \% 0 &=\tau\end{aligned}$

A)8.67 percent
B)8.00 percent
C)7.60 percent
D)7.33 percent

Question 25

Solve for the weighted average cost of capital. $\begin{aligned}13.00 \% &=K_{1} \\5 / 7 &=\lambda \\8.0 \% &=i \\40.0 \% 0 &=\tau\end{aligned}$

A)8.67 percent
B)8.00 percent
C)7.60 percent
D)7.14 percent

Question 26

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 1/2.

A)1/3
B)1/2
C)3/5
D)2/3

Question 27

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 4½.

A)3/4
B)7/9
C)4/5
D)9/11

Question 28

Solve for the weighted average cost of capital. $\begin{aligned}17.20 \% &=K_{1} \\6 / 7 &=\lambda \\8.0 \% &=i \\40.0 \% 0 &=\tau\end{aligned}$

A)7.00 percent
B)6.89 percent
C)6.73 percent
D)6.57 percent

Question 29

Find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of 1/2.

A)1
B)2
C)3
D)4

Question 30

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 2½.

A)1/3
B)1/2
C)3/5
D)5/7

Question 31

Solve for the weighted average cost of capital. $\begin{aligned}12.40 \% &=K_{1} \\2 / 3 &=\lambda \\8.0 \% &=i \\40.0 \% 0 &=\tau\end{aligned}$

A)8.67 percent
B)8.00 percent
C)7.60 percent
D)7.33 percent

Question 32

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 2½.

A)1/3
B)1/2
C)3/5
D)5/7

Question 33

Solve for the weighted average cost of capital. $\begin{aligned}16.00 \% &=K_{1} \\5 / 6 &=\lambda \\8.0 \% &=i \\40.0 \% 0 &=\tau\end{aligned}$

A)7.00 percent
B)6.89 percent
C)6.73 percent
D)6.67 percent

Question 34

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 1½.

A)1/3
B)1/2
C)3/5
D)2/3

Question 35

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 5.

A)3/4
B)7/9
C)4/5
D)5/6

Question 36

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 4.

A)3/4
B)7/9
C)4/5
D)9/11

Question 37

Solve for the weighted average cost of capital. $\begin{aligned}15.40 \% &=K_{1} \\9 / 11 &=\lambda \\8.0 \% &=i \\40.0 \% 0 &=\tau\end{aligned}$

A)7.00 percent
B)6.89 percent
C)6.73 percent
D)6.67 percent

Question 38

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 3.

A)3/4
B)7/9
C)4/5
D)9/11

Question 39

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 3½.

A)3/4
B)7/9
C)4/5
D)9/11

Question 40

Solve for the weighted average cost of capital. $\begin{aligned}13.60 \% &=K_{1} \\3 / 4 &=\lambda \\8.0 \% &=i \\40.0 \% 0 &=\tau\end{aligned}$

A)7.00 percent
B)6.89 percent
C)6.73 percent
D)6.67 percent

Question 41

Find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of 5/6.

A)2
B)3
C)4
D)5

Question 42

The cost of equity capital is

A)the expected return on the firm's stock that investors require.
B)frequently estimated by using the Capital Asset Pricing Model (CAPM).
C)generally considered to be a linear function of the systematic risk inherent in the security.
D)all of the options

Question 43

Compute the debt-to-total-value ratio for a firm that has a debt-to-equity ratio of 2.

A)1/3
B)2/5
C)3/2
D)2/3

Question 44

Find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of 4/5.

A)1
B)2
C)3
D)4

Question 45

A reduced cost of equity capital increases the firm's value

A)through revaluation of the firm's existing cash flows from existing projects.
B)through increased investment as more projects become positive NPVs.
C)both of the options
D)none of the options

Question 46

Corporations are becoming multinational not only in the scope of their business activities but also in their capital structure(.)

A)by raising funds from domestic as well as government sources.
B)by raising funds from foreign as well as domestic sources.
C)This trend reflects not only a conscious effort on the part of firms to raise the cost of capital by international sourcing of funds but also the ongoing liberalization and deregulation of international financial markets that make them accessible for many firms.
D)by raising funds from foreign as well as domestic sources.This trend reflects not only a conscious effort on the part of firms to raise the cost of capital by international sourcing of funds,but also the ongoing liberalization and deregulation of international financial markets that make them accessible for many firms.

Question 47

A value-maximizing firm would

A)undertake an investment project as long as the IRR exceeds the NPV.
B)undertake an investment project as long as the IRR is less than the cost of capital.
C)undertake an investment project as long as the IRR exceeds the cost of capital.
D)none of the options

Question 48

Systematic risk refers to

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 49

The firm's tax rate is 34 percent.The firm's pre-tax cost of debt is 8 percent; the firm's debt-to-equity ratio is 4; the risk-free rate is 3 percent; the beta of the firm's common stock is 1.5; the market risk premium is 9 percent.What is the firm's cost of equity capital?

A)33.33 percent
B)10.85 percent
C)13.12 percent
D)16.50 percent

Question 50

Find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of 2/3.

A)1
B)2
C)3
D)4

Question 51

Find the weighted average cost of capital for a firm that has a debt-to-equity ratio of 2,a tax rate of 40 percent,a levered cost of equity of 12 percent and an after-tax cost of debt of 9 percent.

A)7.6 percent
B)7.968 percent
C)10 percent
D)none of the options

Question 52

The common stock of Kansas City Power and Light has a beta of 0.80.The Treasury bill rate is 4 percent and the market risk premium is 8 percent.What is their cost of equity capital?

A)12.0 percent
B)10.4 percent
C)7.20 percent
D)6.4 percent

Question 53

Compute the debt-to-equity ratio for a firm that has a debt-to-value ratio of 60 percent.

A)1/3
B)2/5
C)3/2
D)none of the options

Question 54

Micro Spinoffs,Inc.,issued 20-year debt one year ago today at par value with a coupon rate of 9 percent,paid annually.Today,the debt is selling at $1,050.If the firm's tax rate is 34 percent,what is its after-tax cost of debt?

A)9 percent
B)8.46 percent
C)5.94 percent
D)5.58 percent

Question 55

Find the weighted average cost of capital for a firm that has a debt-to-equity ratio of 2,a tax rate of 40 percent,a levered cost of equity of 12 percent and a pre-tax cost of debt of 9 percent.

A)7.6 percent
B)7.968 percent
C)10 percent
D)none of the options

Question 56

Find the weighted average cost of capital for a firm that has a debt-to-equity ratio of 1½,a tax rate of 34 percent,a levered cost of equity of 12 percent and an after-tax cost of debt of 8 percent.

A)9.6 percent
B)7.968 percent
C)14 percent
D)none of the options

Question 57

Find the debt-to-equity ratio for a firm with a debt-to-total-value ratio of 3/4

A)1
B)2
C)3
D)4

Question 58

Using the notation of the text,the CAPM states

A) $\bar { R }_{i}$ = $R _{f}$ + $\beta _ { i }$ ( $\bar { R } _ { M }$ - $R_{f}$ )(1 - ?)
B) $\bar { R }_{i}$ = ? $R _{f}$ + $\beta _ { i }$ ( $\bar { R } _ { M }$ - $R _{f}$ )(1 - ?)
C) $\bar { R }_{i}$ = $R _{f}$ + $\beta _ { i }$ ( $\bar { R } _ { M }$ - $R _{f}$ )
D)none of the options

Question 59

Find the weighted average cost of capital for a firm that has a debt-to-equity ratio of 1½,a tax rate of 34 percent,a levered cost of equity of 12 percent and a pre-tax cost of debt of 10 percent.

A)9.6 percent
B)7.968 percent
C)8.76 percent
D)none of the options

Question 60

The market risk premium

A)can be defined by the difference between the expected market return and the risk-free rate.
B)is the reward for bearing nondiversifiable risk.
C)is the slope of the security market line.
D)can be expressed as ( $\bar { R } _ { M }$ - $R _{f}$ )

Question 61

For a firm confronted with a fixed schedule of possible new investments,any policy that lowers the firm's cost of capital will increase the profitable capital expenditures the firm takes on and increase the wealth of the firm's shareholders.One such policy is

A)internationalizing the firm's capital budgeting opportunities.
B)internationalizing the firm's cost of capital.
C)investing in riskier projects financed with debt.
D)none of the options

Question 62

Suppose the domestic U.S.beta of IBM is 1.0,that is    _U.S
?  _IMB = 1.0,and that the expected return on the U.S.market portfolio is $\overline { \mathcal { R } } \text { U.S. }$ = 12 percent,and that the U.S.T-bill rate is 6 percent.If the world beta measure of IBM is    _world
?  _IMB = 0.80 then we can say

A)that if the U.S.markets are fully integrated with the rest of the world,IBM's cost of equity capital would be 20 percent lower than if U.S.markets were segmented.
B)that if the U.S.markets are fully integrated with the rest of the world,IBM's cost of equity capital would be 10 percent lower than if U.S.markets were segmented.
C)that if the U.S.markets are fully integrated with the rest of the world,IBM's cost of equity capital would be one-third lower than if U.S.markets were segmented.
D)none of the options

Question 63

Recent studies suggest that agency costs of managerial discretion are lower in Japan than in the United States.This suggests that

A)the cost of capital can be lower in Japan than the United States,but only if international financial markets are not fully integrated.
B)the cost of capital can be lower in Japan than the United States,even if international financial markets are fully integrated.
C)the cost of capital will be higher in Japan than the United States,even if international financial markets are fully integrated.
D)none of the options

Question 64

Assume that the risk-free rate of return is 4 percent,and the expected return on the market portfolio is 10 percent.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.

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

Question 65

The firm's tax rate is 34 percent.The firm's pre-tax cost of debt is 8 percent; the firm's debt-to-equity ratio is 4; the risk-free rate is 3 percent; the beta of the firm's common stock is 1.5; the market risk premium is 9 percent.Calculate the weighted average cost of capital.

A)33.33 percent
B)8.09 percent
C)9.02 percent
D)16.5 percent

Question 66

In the real world,does the cost of capital differ among countries?

A)Yes
B)No

Question 67

The formula for beta is

A) $\beta _ { i }$ = $\frac { \bar { R } i - R _ { f } } { ( \bar { R } M - R f ) }$
B) $\beta _ { i }$ =
$\frac{\rho_{R}, 1, R M}{2}$
$\sigma \mathcal{R} M$
C) $\beta _ { i }$ = $\frac { \operatorname { Cov } \left( \mathcal { R } _ { i } , \mathcal { R } M \right) } { \operatorname { Var } \left( \left( R _ { M } \right) \right. }$
D) $\beta _ { i }$ = $\frac { \operatorname { Corr } \left( \mathcal { R } _ { i } , \mathcal { R } M \right) } { \operatorname { Var } \left( \left( R _ { M } \right) \right. }$

Question 68

Assume that XYZ Corporation is a leveraged company with the following information: K_l = cost of equity capital for XYZ = 13 percent
I = before-tax borrowing cost = 8 percent
T = marginal corporate income tax rate = 30 percent
Calculate the debt-to-total-market-value ratio that would result in XYZ having a weighted average cost of capital of 9.3 percent.

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

Question 69

Suppose that the firm's cost of capital can be reduced from K^l under the local capital structure to K^g under an internationalized capital structure.The take-away lesson from the graph is that

A)the firm can then increase its profitable investment outlay from I^l to I^g,contributing to the firm's value.
B)a reduced cost of capital increases the firm's value not only through increased investments in new projects but also through revaluation of the cash flows from existing projects.
C)K^l and K^g represent,respectively,the cost of capital under local and international capital structures; IRR represents the internal rate of return on investment projects; I^l and I^g represent the optimal investment outlays under the alternative capital structures.
D)all of the options

Question 70

In the graph,

A)K^l and K^g represent,respectively,the cost of capital under international and local capital structures; IRR represents the internal rate of return on investment projects; I^l and I^g represent,respectively,the optimal investment outlays under the alternative capital structures.
B)K^l and K^g represent,respectively,the cost of capital under local and international capital structures; IRR represents the internal rate of return on investment projects; I^l and I^g represent the optimal investment outlays under the alternative capital structures.
C)both of the options
D)none of the options

Question 71

Suppose that the British stock market is segmented from the rest of the world.Using the CAPM and a risk-free rate of 5 percent,estimate the equity cost of capital for Stansfield. Correlation Coefficients
Stansfield England World SD(%) $\mathcal { R }$ %
$$\begin{array} { l c c l c c } \text { Stansfield } & 1.00 & 0.90 & 0.60 & 20 & ? \\\text { England } & & 1.00 & 0.80 & 18 & 14 \\\text { World } & & & 1.00 & 15 & 12\end{array}$$

A)14 percent
B)12 percent
C)9 percent
D)none of the options

Question 72

Assume that XYZ Corporation is a levered company with the following information: K_l = cost of levered equity capital for XYZ = 13 percent
I = before-tax borrowing cost = 8 percent
T = marginal corporate income tax rate = 30 percent
If XYZ's debt-to-total-market-value ratio is 40 percent,then its weighted average cost of capital,K,is

A)8 percent.
B)9 percent.
C)10 percent.
D)12 percent.

Question 73

Compute the domestic country beta of Stansfield Bicycles as well as its world beta. Correlation Coefficients
Stansfield England World SD(%) $$\mathcal { R }$$ %
$$\begin{array} { l c c l c c } \text { Stansfield } & 1.00 & 0.90 & 0.60 & 20 & ? \\\text { England } & & 1.00 & 0.80 & 18 & 14 \\\text { World } & & & 1.00 & 15 & 12\end{array}$$

A)1.00 and 0.80 respectively
B)0.80 and 0.00 respectively
C)4.50 and 4.00 respectively
D)none of the options

Question 74

Assume that XYZ Corporation is a leveraged company with the following information: K_l = cost of equity capital for XYZ = 13 percent
I = before-tax borrowing cost = 8 percent
T = marginal corporate income tax rate = 30 percent
If XYZ's debt-to-total-market-value ratio is 40 percent,then its weighted average cost of capital,K,is:

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

Question 75

The following is an outline of certain potential benefits as well as costs associated with the cross-border listings of stocks: (i)the company can expand its potential investor base
(ii)issues involving the disclosure and listing requirements
(iii)creates a secondary market for the company's shares
(iv)volatility spillover from the overseas markets
(v)liquidity
(vi)control of the company by foreigners
(vii)enhances the visibility of the company's name and its products in foreign marketplaces
Which of the following represent all the potential costs of the cross-border listings of stocks?

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

Question 76

The following is an outline of certain potential benefits as well as costs associated with the cross-border listings of stocks: (i)the company can expand its potential investor base
(ii)issues involving the disclosure and listing requirements
(iii)creates a secondary market for the company's shares
(iv)volatility spillover from the overseas markets
(v)liquidity
(vi)control of the company by foreigners
(vii)enhances the visibility of the company's name and its products in foreign marketplaces
Which of the following represent all the potential benefits of the cross-border listings of stocks?

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

Question 77

Suppose that the British stock market is integrated with the rest of the world and Stansfield Company has made its shares tradable internationally via cross-listing on the NYSE.Using the CAPM and a risk-free rate of 5 percent,estimate the equity cost of capital for Stansfield. Correlation Coefficients
Stansfield England World SD(%) $\mathcal { R }$ %
$$\begin{array} { l c c l c c } \text { Stansfield } & 1.00 & 0.90 & 0.60 & 20 & ? \\\text { England } & & 1.00 & 0.80 & 18 & 14 \\\text { World } & & & 1.00 & 15 & 12\end{array}$$

A)12 percent
B)10.60 percent
C)6.60 percent
D)None of the options

Question 78

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

A)a measure of systematic risk inherent in a security.
B)calculated as the "covariance of future returns between a specific security and the market portfolio" divided by the "variance of returns of the market portfolio."
C)a measure of systematic risk inherent in a security; calculated as the "covariance of future returns between a specific security and the market portfolio" divided by the "variance of returns of the market portfolio."
D)none of the options

Question 79

For most countries and most firms,the domestic country beta

A)can be no lower than its world beta.
B)is normally much smaller than the world beta.
C)is normally much higher than the world beta.
D)is exactly equal to the world beta.

Question 80

Studies suggest that international capital markets are not segmented anymore

A)and are therefore fully integrated.
B)but are not as yet fully integrated.
C)so cross-listing of shares will not lower a firm's cost of capital.
D)none of the options