Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

1) The reason more foreign firms do not sell equity securities in the U.S. and list on the NYSE is because of

Answer

the foreign exchange risk of listing in U.S. dollars.

the threat of confiscation.

detailed U.S. disclosure rules.

the relative inefficiency of U.S. equity markets.

2) Brachman Builders is a large international construction firm that wants to raise up to $60 million to finance expansion. Brachman desires to maintain a capital structure that is 50% debt and 50% equity. Brachman can finance in the domestic and international markets at the rates listed in the following table. Both debt and equity would have to be sold in multiples of $15 million, and these cost figures show the component costs, each, of debt and equity if raised half by equity and half by debt.

Up to $30 million of new capital

Cost of Domesic Equity 10%
Cost of Domesic Debt 8%
Cost of European Equity 12%
Cost European Debt 6%
$31 million to $60 of new capital
Cost of Domesic Equity 16%
Cost of Domesic Debt 10%
Cost of European Equity14%
Cost European Debt 8%

What is the lowest possible average cost of capital for Brachman if the firm raises $30 million, maintains their desired capital structure and they are in a 30% tax bracket?

Answer

7.00%

8.10%

4.90%

7.10%

3) ADRs are considered an effective way for firms to improve the liquidity of their stock, especially if the home market is small and illiquid.

Answer
True
False

4) Which of the following does not constitute a benefit to the investor of diversifying internationally?

Answer

The increase in the expected return from an internationally diversified investment.

The relatively low degree of correlation between the world's stock markets.

A lower total level of nondiversifiable risk.

All of the above are benefits of international diversification.

5) TropiKana Inc. has just borrowed >1,000,000 to make improvements to an Italian fruit plantation and processing plant. If the interest rate is 7.00% per year and the Euro depreciates against the dollar from $1.15/ > at the time the loan was made to $1.10/ > at the end of the first year, how much interest and principle will TropiKana pay at the end of the first year if they repay the entire loan plus interest (rounded)?

Answer

$972,727

$1,177,000

>972,727

$1,070,000

6) ABC Inc. borrows 100m JPY when JPY spot rate is JPY120/$. The JPY interest rate for the loan is 3%. One year later when ABC pays back the JPY principal and interest, the exchange rate is JPY 95/$. What is the dollar cost of ABC's JPY loan?

Answer

3%

30.1%

-18.46%

None of the above

7) A firm whose equity has a beta of 1.0

Answer

has less systematic risk than the market portfolio.

has greater systematic risk than the market portfolio.

stands little chance of surviving in the international financial market place.

None of the above is true.

8) Empirical evidence shows that new issues of equity by domestic firms in the U.S. market typically has a ________ stock price reaction and new equity issues in the U.S. markets by foreign firms with segmented domestic markets have a ________ stock price reaction.

Answer

positive; negative

negative; negative

positive; positive

negative; positive

9) Which of the following is NOT a reason why capital budgeting for a foreign project is more complex than for a domestic project?

Answer

Parent firms must specifically recognize remittance of funds due to differing rules and regulations concerning remittance of cash flows, taxes, and local norms.

Differing rates of inflation between the foreign and domestic economies.

Parent cash flows must be distinguished from project cash flows.

All of the above add complexity to the international capital budgeting process.

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

Answer

temperatures

debt ratios

equity ratios

None of the above.

11) Given the information provided in the table, what is your estimate of the cost of equity for Gibson Flowers?

Risk-free rate of interest 3.5%
Average equity market return 10.5%
Estimated cost of debt 8.0%
Estimated correlation of Gibson with the market 0.726
Estimated standard deviation of Gibson's returns 35%
Estimated standard deviation of the market's returns 20%
Estimated effective U.S. tax rate 35%

Answer

13.34%

12.39%

7.81%

16.83%

12) When determining a firm's weighted average cost of capital (wacc) which of the following terms is NOT necessary?

Answer

The firm's tax rate.

The firm's cost of equity.

The firm's cost of debt.

All of the above are necessary.

13) A Chinese MNC needs US$25,000,000 for one year to finance working capital. The company has two alternatives for borrowing:
1. Borrow US$25,000,000 in Eurodollars in London at 6.25% per annum
2. Borrow RMB 205,000,000 in Shanghai at 8.00% per annum, and exchange these RMB at the present exchange rate of RMB8.2/$ for U.S. dollars.
At what ending exchange rate would Chinese MNC be indifferent between borrowing U.S. dollars and borrowing RMB?

Answer

RMB 8.2/$

RMB8.9/$

RMB8.067/$

RMB8.335/$

14) Empirical research has found that systematic risk for MNEs is greater than that for their domestic counterparts. This could be due to

Answer

the reduction in the correlation of returns between the firm and the market is less than the increase in the variability of returns caused by factors such as asymmetric information, foreign exchange risk, and the like.

the fact that the decrease in the correlation of returns between the market and the firm is greater than the increase in the standard deviation of returns of the firm.

the fact that the increase in the correlation of returns between the market and the firm is less than the increase in the standard deviation of returns of the firm.

None of the above Systematic risk is less for MNEs than for their domestic counterparts.

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

Answer
True
False

 

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M924589

Have any Question? 


Related Questions in Basic Finance

The delta company has issued a total of 25000000 shares of

The Delta Company has issued a total of 25,000,000 shares of common stock at par(its value to the firm is $25, 000,000. The dividend yield is 6%. The company also has $15,000,000 of bonds(also sold at par) with a coupon ...

1 discuss how the interrupted time series design with a

1. Discuss how the interrupted time series design with a reversal and the interrupted time series design with multiple replications improve on the simple interrupted time series design. 2. Distinguish between a longitudi ...

Go to the home page of cisco systems inc httpwwwciscocom

Go to the home page of Cisco Systems, Inc. (http://www.cisco.com) and link to its financial reports page. Download the most recent annual report and observe the capital investment and dividend policies of Cisco Systems. ...

1 the study of annual reports reviewed in this chapter

1. The study of annual reports reviewed in this chapter showed that earnings per share was disclosed in every annual report. Why? 2. The study of annual reports reviewed in this chapter indicated that wide differences of ...

1 what dangers are encountered by mortgagees and unreleased

1. What dangers are encountered by mortgagees and unreleased mortgagors when property is sold "subject to" a mortgage? 2. What is the difference between equity of redemption and statutory redemption? 3. What special adva ...

1 what is the main advantage of the typical optimization

1. What is the main advantage of the typical optimization technique in comparison to simulation? 2. At what point in the typical analysis does the technique give way to the managerial review and evaluation process? 3. Co ...

Diversification- videosgo to wwwcnbccom and explore the

DIVERSIFICATION- VIDEOS Go to www.cnbc.com and explore the video tab using the key term diversification. As you learned in this unit, there are various sources of information. 1) Watch at least three videos you find, 2) ...

Writing assignmentthe capital budgeting decision techniques

Writing Assignment: The capital budgeting decision techniques discussed so far all have strengths and weaknesses; however, they do comprise the most popular rules for valuing projects. On the other hand, valuing an entir ...

Your firm is considering a new investment proposal and

Your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital. To help in this, compute the cost of capital for the firm for the following: a. A bond that has a $1000 ...

Discussion lets discuss the following based on the assigned

Discussion: Let's discuss the following (based on the assigned and recommneded reading): 1. Is Paying a Premium for Certain Securities Worth the Price? Are portfolio managers willing to pay a premium for securities that ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen