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

Question utilizing the concepts learned throughout the

Question: Utilizing the concepts learned throughout the course, write a Final Paper on one of the following scenarios: • Option One: You are a consultant with 10 years experience in the health care insurance industry. A ...

Discussion your initial discussion thread is due on day 3

Discussion: Your initial discussion thread is due on Day 3 (Thursday) and you have until Day 7 (Monday) to respond to your classmates. Your grade will reflect both the quality of your initial post and the depth of your r ...

Question financial ratios analysis and comparison

Question: Financial Ratios Analysis and Comparison Paper Prior to completing this assignment, review Chapter 10 and 12 in your course text. You are a mid-level manager in a health care organization and you have been aske ...

Grant technologies needs 300000 to pay its supplier grants

Grant Technologies needs $300,000 to pay its supplier. Grant's bank is offering a 210-day simple interest loan with a quoted interest rate of 11 percent and a 20 percent compensating balance requirement. Assuming there a ...

Franks is looking at a new sausage system with an installed

Franks is looking at a new sausage system with an installed cost of $375,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped ...

Market-value ratios garret industries has a priceearnings

(?Market-value ratios?) Garret Industries has a? price/earnings ratio of 19.46X a. If? Garret's earnings per share is ?$1.65?, what is the price per share of? Garret's stock? b. Using the price per share you found in par ...

You are planning to make annual deposits of 4440 into a

You are planning to make annual deposits of $4,440 into a retirement account that pays 9 percent interest compounded monthly. How large will your account balance be in 32 years?  (Do not round intermediate calculations a ...

One year ago you bought a put option on 125000 euros with

One year ago, you bought a put option on 125,000 euros with an expiration date of one year. You paid a premium on the put option of $.05 per unit. The exercise price was $1.36. Assume that one year ago, the spot rate of ...

Common stock versus warrant investment tom baldwin can

Common stock versus warrant investment Tom Baldwin can invest $6,300 in the common stock or the warrants of Lexington Life Insurance. The common stock is currently selling for $30 per share. Its warrants, which provide f ...

Call optionnbspcarol krebs is considering buying 100 shares

Call option  Carol Krebs is considering buying 100 shares of Sooner Products, Inc., at $62 per share. Because she has read that the firm will probably soon receive certain large orders from abroad, she expects the price ...

  • 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

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As