ECO 410 Week 8 Quiz – Strayer
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Quiz 7 Chapter 13 and 14
Chapter 13
The Global Cost and Availability
of Capital
13.1 Financial Globalization and Strategy
Multiple Choice
1) 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.
A)
liquid; segmented
B)
liquid; large
C)
illiquid; segmented
D)
large; illiquid
2) 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.
3)
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
4) 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
5) 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.
6) 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.
7) 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%.
8) 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
9) 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.
10)
________ 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
11)
Systematic risk:
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
12)
Which of the following is generally unnecessary in measuring the cost of debt?
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.
13) The
after-tax cost of debt is found by:
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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