Ask Question, Ask an Expert


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


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?






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.


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


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)?






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?





None of the above

7) A firm whose equity has a beta of 1.0


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.


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?


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.



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%






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


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?


RMB 8.2/$




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


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.



Basic Finance, Finance

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

Have any Question? 

Related Questions in Basic Finance

1 suppose that in the lasim problem the transport cost

1. Suppose that in the Lasim problem, the transport cost between the production site and the warehouse is not negligible. In this case, the inventory replenishment of product A-124 has a transport cost of € 25. Determine ...

Find data to decide whether to open a store-you have been

Find data to decide whether to open a store:- You have been asked to determine the feasibility of opening a frozen yogurt store in Greenville, North Carolina. Answer the following questions, using the latest figures avai ...

1 define willingness to pay and how it can be evaluated2

1. Define willingness to pay and how it can be evaluated. 2. What information is normally obtained from a credit report? 3. In analyzing corporate credit, what further investigation would an underwriter employ beyond a c ...

1 define amortization list the five types discussed2 why do

1. Define amortization. List the five types discussed. 2. Why do the monthly payments in the beginning months of a CPM loan contain a higher proportion of interest than principal repayment?

An asset management firm has a 300 million portfolio

An asset management firm has a $300 million portfolio consisting of all stock. It would like to divest 10 percent of its stock and invest in bonds. It considers the possibility of synthetically selling some stock using e ...

1 compare the assessment of face content and construct

1. Compare the assessment of face, content, and construct validity. Which of the three approaches is most objective, and why? Is it possible to have a measure that is construct valid but not face valid? 2. What is the im ...

Use the same information as in problem now assume a loan

Use the same information as in problem. Now assume a loan for $1.5 million is obtained at a 10 percent interest rate and a 15-year term. a. Calculate the expected IRR on equity and the standard deviation of the return on ...

You are prohibited from discussing this assignment with

You are prohibited from discussing this assignment with other students. Construct an Excel spreadsheet that determines the following values: 1. Black-Scholes-Merton model call option without dividends. 2. Binomial model ...

Now consider a second joint of the same material width and

Now consider a second joint of the same material, width and thickness as the joint in problem 4 above but eccentrically loaded. This time, however, the line of action of the external load is 0.563 in. removed from the ce ...

1 depreciation expense is located on thea balance sheetb

1. Depreciation expense is located on the A. balance sheet. B. income statement. C. the accounts receivable documention. D. the accounts payable documentation. 2. Joe Sullivan invests $9,000 at the end of each year for 2 ...

  • 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

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

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