FINAN 430 EXAM 4

FDI can take the form of
a) establishing new production facilities in a foreign country
b) cross-border M&A
c) Greenfield investment
d) all of the options

d) all of the options

Firms become multinational
a) when they undertake foreign direct investment (FDI)
b)with the establishments of new production facilities in foreign countries such as Honda's Ohio plant
c) when they become involved in mergers with and acquisitions of exist

d) all of the options

The United States is the largest initiator, of FDI. The largest recipient of FDI is
a) also the United States
b)France
c) Germany
d) China

a) also the United States

Japan play a major role as an exporter of FDI. As a recipient of FDI,
a) Japan receives as much FDI as it exports, making it a major player on both fronts
b) Japan plays a relatively minor role, reflecting a variety of legal, economic, and cultural barrie

b) Japan plays a relatively minor role, reflecting a variety of legal, Economic, cultural barriers to FDI

Alternatives to firms locating production overseas include
a) exporting from the home country
b) licensing production to a local firm in the host country
c) ignoring the foreign market
d) all of the options

d) all of the options

The key factors that are important in a firm's decision to invest overseas are
a) trade barriers, imperfect labor market, intangible assets
b) vertical integration, product life cycle, shareholder diversification services
c) profit maximization, global pr

d) trade barriers, imperfect labor market, and tangible assets, as well as vertical integration, product life cycle, and shareholder diversification services.

Trade barriers can arise naturally. Which of the following are natural barriers to trade?
a) transportation costs
b) quotas
c) tariffs
d) transactions costs

a) transportation costs

Labor services in a country might be underpriced relative to productivity because
a) workers are not allowed to freely move acrid national boundaries to seek higher wages
b) some countries do a bad job of educating their work force, consequently they are

a) workers are not allowed to freely move across national boundaries to seek higher wages

Coca-Cola has invested in bottling plants all over the world rather than licensing local firms
a) because the foreigners can't be trusted to follow the secret recipe
b) because Coca-Cola wanted to protect the formula for its famous soft drink
c) because o

b) because Coca-Cola wanted to protect the formula for its famous soft drink

MNCs may undertake overseas investment projects in a foreign country, despite the fact that local firms may enjoy inherent advantages. This implies that
a) MNCs are making a mistake in this case and it will have to eventually withdraw
b) MNCs should have

b) MNCs should have significant advantages over local firms such as comparative advantages due to intangible assets

According to the internalization theory of FDI
a) forms that have intangible assets with a public good property tend top invest directly in foreign countries
b) property rights in intangible assets are difficult to establish and protect, especially in for

a) forms that have intangible assets with a public good property tend top invest directly in foreign countries

The conflicts between the upstream and downstream firms can be resolved,
a) if the two firms form a horizontally integrated firm
b) if the two firms form a vertically integrated firm
c) if the two firms form a linearly integrated firm
d) none of the optio

b) if the two firms form a vertically integrated firm

The cost of capital is
a) the minimum rate of return an investment project must generate in order to pay its financing costs
b) the minimum rate of return an investment project must generate in order to pay its financing costs plus a reasonable profit
c)

a) the minimum rate of return an investment project must generate in order to pay its financing costs

In the notation of the book, K = (1 ? ?)Kl + ?(1 ? ?)i ; which of the following is correct?
a) The debt-to-total market value ratio is ?
b) The tax rate is i
c) The after-tax cost of debt capital is i
d) all of the options

A) The debt-to-total market value ratio is ?

Find the debt-to-value ratio for a firm with a debt-to-equity ratio of 3
a) 3/4
b) 7/9
c) 4/5
d) 9/11

a) 3/4

Find the weighted average cost of capital for a firm that has a debt-to-equity ratio of 1 1/2, a tax rate of 34, a levered cost of equity of 12 percent and a pre-tax cost of debt of 10 percent
a) 9.60 percent
b) 7.97 percent
c) 8.76 percent
d) none of the

c) 8.76 percent

The cost of equity capital is
a) the expected return on the firm's stock that investors require
b) frequently estimated by using the Capital Asset Pricing Model (CAMP)
c) generally considered to be a liner function of the systematic risk inherent in the s

d) all of the options

The common stock of Kansas City Power and Light has a bet of 0.80. The treasury bill rate is 4 percent and the market risk premium is 8 percent. What is their cost of equity capital?
a) 12.0 percent
b) 10.4 percent
c) 7.20 percent
d) 6.4 percent

b) 10.4 percent

For a firm confronted with a fixed schedule of possible new investments, new policy that lowers the firm's cost of capital will increase the profitable capital expenditures the firm takes on and increase the wealth of the firm's shareholders. One such pol

b) internationalizing the firm's cost of capital

Companies domiciled in countries with weak investor protection can reduce agency costs between shareholders and management
a) by moving to a better country
b) by listing their stocks in countries with strong investor protection
c) by voluntarily complying

b) by listing their stocks in countries with strong investor protection

With regard to the financial structure of a foreign subsidiary,
a) using local financing can reduce political risk.
b) a MNC that finances a foreign investment with home-country equity faces greater risk of
expropriation than if it had financed the invest

d) all of the options

The COVID Correction was
a) The swiftest U.S. market correction in modern history
b) The most severe (in depth) U.S. market correction in modern history
c) Both the swiftest and most severe U.S. market correction in modern history
d) Neither the swiftest

a) The swiftest U.S. market correction in modern history

During the COVID Correction...
a) Global manufacturing was not hurt quite as bad as U.S. manufacturing
b) The U.K. economy held up surprisingly well
c) Manufacturing output was not hurt quite as bad as the services sector
d) Service-sector activity fell b

c) Manufacturing output was not hurt quite as bad as the services sector

In the wake of the COVID Correction...
a) Big (U.S.) Tech stocks are doing just as well as ever; they are even up for the year
b) Facebook has been the top-performing stock in the S&P 500 Index
c) Real Estate has been the top-performing sector in the S&P

a) Big (U.S.) Tech stocks are doing just as well as ever; they are even up for the year

During the COVID Correction, why did the Fed opt to partially circumvent the banking system?
a) Because banks were unwilling to participate just like during the 2008 crisis
b) Because regulatory changes after the 2008 crisis have led more and more lending

b) Because regulatory changes after the 2008 crisis have led more and more lending to be
done outside the traditional banking channel