Global Cost And Availability Of Capital

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Question 1
Free
Multiple Choice

If a firm lies within a country with ________ or ________ domestic capital markets, it can achieve lower global cost and greater availability of capital with a properly designed and implemented strategy to participate in international capital markets.

Choose correct answer/s
A

liquid; segmented

B

liquid; large

C

illiquid; segmented

D

large; illiquid

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Question 2
Free
Multiple Choice

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:

Choose correct answer/s
A

relatively low cost of capital.

B

relatively high cost of capital.

C

relatively average cost of capital.

D

cost of capital that we cannot estimate from this question.

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Question 3
Free
Multiple Choice

Relatively high costs of capital are more likely to occur in:

Choose correct answer/s
A

highly illiquid domestic securities markets.

B

highly liquid domestic securities markets.

C

unsegmented domestic securities markets.

D

none of the above

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Question 4
Free
Multiple Choice

Reasons that firms may find themselves with relatively high costs of capital include:

Choose correct answer/s
A

The firms reside in emerging countries with undeveloped capital markets.

B

The firms are too small to easily gain access to their own national securities market.

C

The firms are family owned and they choose not to access public markets and lose control of the firm.

D

all of the above

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Question 5
Free
Multiple Choice

Which of the following is NOT a contributing factor to the segmentation of capital markets?

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A

excessive regulatory control

B

perceived political risk

C

anticipated foreign exchange risk

D

All of the above are contributing factors.

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Question 6
Multiple Choice

Which of the following is NOT a contributing factor to the segmentation of capital markets?

Choose correct answer/s
A
lack of transparency
B
asymmetric availability of information
C
insider trading
D
All of the above are contributing factors.
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Question 7
Multiple Choice

The weighted average cost of capital (WACC) is:

Choose correct answer/s
A
the required rate of return for all of a firm's capital investment projects.
B
the required rate of return for a firm's average risk projects.
C
not applicable for use by MNE.
D
equal to 13%.
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Question 8
Multiple Choice

The capital asset pricing model (CAPM) is an approach:

Choose correct answer/s
A
to determine the price of equity capital.
B
used by marketers to determine the price of saleable product.
C
that can be applied only to domestic markets.
D
none of the above
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Question 9
Multiple Choice

Which of the following is NOT a key variable in the equation for the capital asset pricing model?

Choose correct answer/s
A
the risk-free rate of interest
B
the expected rate of return on the market portfolio
C
the marginal tax rate
D
All are important components of the CAPM.
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Question 10
Multiple Choice

________ risk is a function of the variability of expected returns of the firm's stock relative to the market index and the measure of correlation between the expected returns of the firm and the market.

Choose correct answer/s
A
Systematic
B
Unsystematic
C
Total
D
Diversifiable
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Question 11
Multiple Choice

Systematic risk:

Choose correct answer/s
A
is the standard deviation of a security's return.
B
is measured with beta.
C
is measured with standard deviation.
D
none of the above
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Question 12
Multiple Choice

Which of the following is generally unnecessary in measuring the cost of debt?

Choose correct answer/s
A
a forecast of future interest rates
B
the proportions of the various classes of debt a firm proposes to use
C
the corporate income tax rate
D
All of the above are necessary for measuring the cost of debt.
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Question 13
Multiple Choice

The after-tax cost of debt is found by:

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A
dividing the before-tax cost of debt by (1 - the corporate tax rate).
B
subtracting (1 - the corporate tax rate) from the before-tax cost of debt.
C
multiplying the before-tax cost of debt by (1 - the corporate tax rate).
D
subtracting the corporate tax rate from the before-tax cost of debt.
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Question 14
Multiple Choice

A firm whose equity has a beta of 1.0:

Choose correct answer/s
A
has greater systematic risk than the market portfolio.
B
stands little chance of surviving in the international financial market place.
C
has less systematic risk than the market portfolio.
D
None of the above is true.
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Question 15
Multiple Choice

The difference between the expected (or required) return for the market portfolio and the risk-free rate of return is referred to as:

Choose correct answer/s
A
beta.
B
the geometric mean.
C
the market risk premium.
D
the arithmetic mean.
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Question 16
Multiple Choice

If a company fails to accurately predict it's cost of equity, then:

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A
the firm's WACC will also be inaccurate.
B
the firm may not be using the proper interest rate to estimate NPV.
C
the firm may incorrectly accept or reject projects based on decisions made using the cost of capital computed with an incorrect cost of equity.
D
All of the above are true.
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Question 17
Multiple Choice

Which of the following statements is NOT true regarding beta?

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A
Beta will have a value of less than 1.0 if the firm's returns are less volatile than the market.
B
Beta will have a value of greater than 1.0 if the firm's returns are more volatile than the market.
C
Beta will have a value of equal to 1.0 if the firm's returns are of equal volatility to the market.
D
All of the statements above are true.
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Question 18
Multiple Choice

Which of the following will NOT affect a firm's beta?

Choose correct answer/s
A
the choice of the market portfolio against which to compare the variability of a firm's returns
B
the choice of the risk-free security
C
the choice of the time period used to calculate the firm's beta
D
None of the above, because each of them affects the calculation of a firm's beta.
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Question 19
Multiple Choice

Beta may be defined as:

Choose correct answer/s
A
the measure of systematic risk.
B
a risk measure of a portfolio.
C
the ratio of the variance of the portfolio to the variance of the market.
D
all of the above
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Question 20
Multiple Choice

________ risk is measured with beta.

Choose correct answer/s
A
Systematic
B
Unsystematic
C
International
D
Domestic
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