Funding The Multinational Firm

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Question 1
Free
Multiple Choice

The choice of when and how to source capital globally is usually aided early on by the advice of:

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A

an investment banker.

B

your stock broker.

C

a commercial banker.

D

an underwriter.

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Question 2
Free
Multiple Choice

Investment banking services include which of the following?

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A

advising when a security should be cross-listed

B

preparation of stock prospectuses

C

help to determine the price of the issue

D

all of the above

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Question 3
Free
Multiple Choice

Which of the following is the typical order of sourcing capital abroad?

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A

an international bond issue, then cross-listing the outstanding issues on other exchanges, then an international bond issue in the target market

B

an international bond issue in the target market, then cross-listing the outstanding issues on other exchanges, then an international bond issue

C

an international bond issue in less prestigious markets, then an international bond issue in the target market, and ultimately a eurobond issue

D

cross-listing the outstanding issues on other exchanges, then an international bond issue, then an international bond issue in the target market

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Question 4
Free
Multiple Choice

Which of the following is the typical first step sourcing capital abroad?

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A

an international bond issue placed on a more prestigious foreign market

B

an international bond issue in the eurobond market

C

an international bond issue placed on a less prestigious foreign market

D

issue equity in one of the less prestigious markets to attract the attention of international investors first

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Question 5
Free
Multiple Choice

By cross listing and selling its shares on a foreign stock exchange, a firm typically tries to accomplish which of the following?

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A

improve the liquidity of its existing shares

B

increase its share price

C

increase the firm's visibility

D

all of the above

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Question 6
True/False

Most firms raise their initial capital in foreign markets.

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True
False
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Question 7
True/False

The ultimate step sourcing capital abroad would be to place a directed equity issue in a prestigious target market or a euroequity issue in global equity markets.

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True
False
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Question 8
Essay

Sourcing capital abroad usually follows a logic path. List in sequential order three corporate strategies in internationalizing the cost of capital.

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Question 9
Multiple Choice

Which financial economists are most closely associated with the financial theory of optimal capital structure?

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A
Modigliani and Miller
B
Fama, Fisher, Jensen, and Roll
C
Black and Scholes
D
Markowitz and Sharpe
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Question 10
Multiple Choice

For most firms, the cost of capital decreases to a low point as the firm ________ debt financing. At some point beyond this optimal level, the cost of capital increases as the amount of debt ________ .

Choose correct answer/s
A
decreases; increases
B
decreases; decreases
C
increases; increases
D
increases; decreases
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Question 11
Multiple Choice

One of the most important factors in making debt less expensive than equity is:

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A
the tax deductibility of depreciation.
B
the tax deductibility of equity.
C
the tax deductibility of dividends.
D
the tax deductibility of interest.
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Question 12
Multiple Choice

One of the most important factors in making debt less expensive than equity is:

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A
the seniority of equity obligations to debt claims.
B
the tax deductibility of dividends.
C
the tax deductibility of equity.
D
the seniority of debt obligations to equity claims.
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Question 13
Multiple Choice

Which of the following is NOT a factor offsetting the tax advantage of debt as a source of financing?

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A
increased agency costs
B
increased probability of financial distress (bankruptcy) due to fixed interest payments
C
alternative tax shields to those supplied by interest payments
D
All of the above offset the tax advantage of debt as a source of financing.
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Question 14
Multiple Choice

Most financial theorists believe that the optimal capital structure is a ________ with a debt to total value ratio somewhere around ________ .

Choose correct answer/s
A
point; 50%
B
point; 25%
C
range; 30%-60%
D
range; 10%-40%
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Question 15
Multiple Choice

Not all firms have the same optimal capital structure. Factors that might influence a firm's capital structure include:

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A
the industry in which it operates.
B
the volatility of its sales and operating income.
C
the collateral value of its assets.
D
all of the above
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Question 16
Multiple Choice

MNEs situated in countries with small illiquid and segmented markets are most like:

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A
small domestic U.S. firms in that they must rely on internally generated funds and bank borrowing.
B
large U.S. MNEs in that they are all MNEs and have worldwide markets and sources of financing.
C
small domestic U.S. firms in that they have a strong niche market in the U.S.
D
None of the above is true.
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Question 17
Multiple Choice

Which of the following were NOT identified by the authors as a variable that needs to be modified in the domestic theory of optimal financial structures to accommodate the case of the multinational enterprise?

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A
financial distress
B
availability of capital
C
diversification of cash flows
D
foreign exchange risk
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Question 18
Multiple Choice

In theory, the MNE should support ________ debt ratios than a purely domestic firm because their cash flows are ________ .

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A
lower; more stable due to international diversification
B
lower; less stable due to international diversification
C
higher; more stable due to international diversification
D
higher; less stable due to international diversification
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Question 19
Multiple Choice

TropiKana Inc., a U.S firm, has just borrowed $1,000,000 to make improvements to an Italian fruit plantation and processing plant. If the interest rate is 6.00% per year, how much interest will they pay in the first year?

Choose correct answer/s
A
$6,000
B
$60,000
C
$600,000
D
€60,000
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Question 20
Multiple Choice

TropiKana Inc., a U.S firm, has just borrowed euro 1,000,000 to make improvements to an Italian fruit plantation and processing plant. If the interest rate is 5.50% per year and the Euro depreciates against the dollar from $1.40/€ at the time the loan was made to $1.35/€ at the end of the first year, how much interest will TropiKana pay at the end of the first year (rounded)?

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A
$55,000
B
€74,250
C
$74,250
D
$77,000
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