1. Other things equal, an increase in the firm's tax rate will increase the WACC for a firm that has both debt and equity financing.

   a. true

   b. false

2. The beginning share price for a security over a three-year period was $50. Subsequent year-end prices were $62, $$58 and $64. The arithmetic average annual rate of return and the geometric average annual rate of return for this stock was

   a. 9.30% and 6.37% respectively.

   b. 9.30% and 7.89% respectively.

   c. 9.30% and 7.03% respectively.

   d. 9.30% and 8.78% respectively.

3. Internationally diversified portfolios often have a lower rate of return and almost always have a higher level of portfolio risk than their domestic counterparts.

   a. true

   b. false

4. 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 ________.

   a. relatively high cost of capital

   b. cost of capital that we cannot estimate from this question

   c. relatively average cost of capital

   d. relatively low cost of capital

5. The WACC is usually used as the risk-adjusted required rate of return for new projects that are of the same average risk as the firm's existing projects.

   a. true

   b. false

6. If a firm's expected returns are more volatile than the market, it will have a beta less than 1.0.

   a. true

   b. false

7. The primary goal of both domestic and international portfolio managers is

   a. maximize their WACC.

   b. to maximize return for a given level of risk, or minimize risk for a given level of return.

   c. minimize the number of unique securities held in their portfolio.

   d. All of the above.

8. Theoretically, most MNEs should be in a position to support higher ________ than their domestic counterparts because their cash flows are diversified internationally.

   a. debt ratios

   b. temperatures

   c. equity ratios

   d. None of the above.

9. A MNEs marginal cost of capital is constant for considerable ranges in its capital budget, but this statement cannot be made for most domestic firms.

   a. true

   b. false

10. The capital asset pricing model (CAPM) is an approach

   a. to determine the price of equity capital.

   b. can be applied only to domestic markets.

   c. used by marketers to determine the price of saleable product.

   d. None of the above.