FINA 450 CHAPTER 13QUESTIONS
WITH CORRECT DETAILED ANSWERS
sIf 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.
A) liquid; segmented
B) liquid; large
C) illiquid; segmented
D) large; illiquid - C
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:
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. - B
Relatively high costs of capital are more likely to occur in:
A) highly illiquid domestic securities markets.
B) highly liquid domestic securities markets.
C) unsegmented domestic securities markets.
D) none of the above - A
Reasons that firms may find themselves with relatively high costs of capital include:
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 - D
Which of the following is NOT a contributing factor to the segmentation of capital markets?
A) excessive regulatory control
, B) perceived political risk
C) anticipated foreign exchange risk
D) All of the above are contributing factors. - D
Which of the following is NOT a contributing factor to the segmentation of capital markets?
A) lack of transparency
B) asymmetric availability of information
C) insider trading
D) All of the above are contributing factors. - D
The weighted average cost of capital (WACC) is:
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%. - B
The capital asset pricing model (CAPM) is an approach:
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 - A
Which of the following is NOT a key variable in the equation for the capital asset pricing model?
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. - C
________ 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.
A) Systematic
B) Unsystematic
C) Total
D) Diversifiable - A
WITH CORRECT DETAILED ANSWERS
sIf 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.
A) liquid; segmented
B) liquid; large
C) illiquid; segmented
D) large; illiquid - C
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:
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. - B
Relatively high costs of capital are more likely to occur in:
A) highly illiquid domestic securities markets.
B) highly liquid domestic securities markets.
C) unsegmented domestic securities markets.
D) none of the above - A
Reasons that firms may find themselves with relatively high costs of capital include:
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 - D
Which of the following is NOT a contributing factor to the segmentation of capital markets?
A) excessive regulatory control
, B) perceived political risk
C) anticipated foreign exchange risk
D) All of the above are contributing factors. - D
Which of the following is NOT a contributing factor to the segmentation of capital markets?
A) lack of transparency
B) asymmetric availability of information
C) insider trading
D) All of the above are contributing factors. - D
The weighted average cost of capital (WACC) is:
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%. - B
The capital asset pricing model (CAPM) is an approach:
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 - A
Which of the following is NOT a key variable in the equation for the capital asset pricing model?
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. - C
________ 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.
A) Systematic
B) Unsystematic
C) Total
D) Diversifiable - A
