Question 1

MNCs might raise equity funds through an IPO or through a seasoned offering.What is the difference between an IPO and a seasoned offering?

Accepted Answer

An IPO is an initial public offering or ...

Question 2

A bond issued outside of the U.S.in the local currency is considered to be a:

Accepted Answer

A)  foreign bond.
B)  Eurobond.
C)  domestic bond.
D)  ninja bond.E) A) and B)
F) B) and D)

Question 3

Within reasonable parameters,if a firm increases its debt as a proportion of its capital structure:

Accepted Answer

A)  its overall cost of capital increases because the amount of interest it has to pay increases.
B)  WACC declines because of the tax advantage of debt.
C)  WACC increases because the proportion of interest to dividends increases.
D)  its costs increase because it is contractually required to pay interest,while dividends are paid in the firm's discretion.E) None of the above
F) A) and B)

Question 4

At what point in the development of an entity is venture capital financing usually provided?

Accepted Answer

A)  the start-up stage
B)  the stage at which an established firm offers a new product line
C)  the stage at which the original founders of the entity leave the entity
D)  when the entity first encounters financial distressE) A) and B)
F) C) and D)

Question 5

How does listing existing shares of an MNC on multiple markets assist the MNC in raising capital?

Accepted Answer

A)  Listing existing stock on multiple markets does not assist the MNC in raising capital because existing funds have already been sold by the MNC.
B)  Listing existing stock on multiple markets makes that stock available to more investors.
C)  Listing existing stock on multiple markets means that the MNC's stock is more desirable.
D)  Listing existing stock on multiple markets does not provide new financing for the MNC but does expand the potential buyers of later issues of new stock.E) A) and C)
F) All of the above

Question 6

A bond issued in a country in a currency other than the currency of the country where it is issued is considered to be a:

Accepted Answer

A)  foreign bond.
B)  Eurobond.
C)  domestic bond.
D)  ninja bond.E) B) and C)
F) A) and D)

Question 7

What is the primary drawback of external equity?

Accepted Answer

A)  External equity is expensive because it obligates the firm to pay dividends to shareholders.
B)  Issuing additional shares of stock reduces the earnings per share of the company and usually the value of its shares of stock.
C)  External equity is a complex and risky way to raise capital and is seldom used.
D)  Issuing additional shares of stock has to be approved by existing stockholders who often will not approve.E) A) and B)
F) A) and C)

Question 8

An attraction of internal equity is that _____________________ but a disadvantage is that _____________________________.

Accepted Answer

A)  earnings are increased;dividends to stockholders are reduced
B)  the cost of internal equity is very low;earnings are reduced
C)  the cost of internal equity is very low;regulatory approval is necessary for the use of internal equity
D)  the cost of internal equity is very low;dividends to stockholders are reducedE) A) and B)
F) B) and C)

Question 9

Standard financial theory advocates that MNCs separate their financing and investing decisions:

Accepted Answer

A)  so MNCs generally do consider decisions on where and how to invest separately from their decisions on how to finance their investments.
B)  but MNCs,in particular,often reject this advice and take chances with currency exposure by combining investing and financing decisions.
C)  but currency risk can require that firms considering financing opportunities with consideration of investment opportunities.
D)  so MNCs often finance their capital needs in one currency and make their investments in another currency.E) B) and D)
F) B) and C)

Question 10

The cost of equity can be inferred by using the capital asset pricing model which:

Accepted Answer

A)  estimates that cost of equity as being approximately to cost of debt.
B)  calculates the cost of equity by applying the discount rate to the amount of equity being raised.
C)  estimates the cost of equity as approximately the average of the cost of equity over the last year.
D)  calculates the cost of equity as the risk-free rate of return plus the risk premium.E) C) and D)
F) A) and C)

Question 11

MNCs tend to be relatively large organizations,and their size gives them two advantages in accessing financial markets.These advantages are that:

Accepted Answer

A)  lenders seek them out and offer them loans,and potential competitors try to avoid competing directly with them.
B)  they do not often need much money from the financial markets,and,when they do need money,they can borrow at below-market rates.
C)  they can take advantage of economies of scale,and their large fixed asset basis reduces risk to lenders.
D)  they can seek financing anywhere in the world,and they can insist on the best interest rates available.E) All of the above
F) C) and D)

Question 12

Why have U.S.firms preferred to finance their operations through public debt markets rather than through bank loans?

Accepted Answer

A)  Bank loans are less flexible and more public than public debt markets.
B)  Bank loans are generally limited in amount and cost more than public debt markets.
C)  Bank loans are more difficult to obtain and cost more than public debt markets.
D)  Bank loans are subject to many more regulations than public debt markets.E) A) and C)
F) B) and D)

Question 13

Why are Eurobonds becoming more popular ways for MNCs to borrow money?

Accepted Answer

A)  Eurobonds are popular in Europe and a large number of potential lenders live in Europe.
B)  Eurobonds offer a large and more varied pool of investors than other bonds.
C)  Eurobonds are denominated in EUR and EUR is the currency of most of Europe.
D)  Eurobonds are closely regulated by the financial markets in Europe.E) C) and D)
F) A) and B)

Question 14

What is a revolver?

Accepted Answer

A)  A revolver is a loan that allows a firm to draw money when it is needed,up to a specified amount,and then to repay the loan in part or in full and then draw additional money from the loan later.
B)  A revolver is a loan that is continually renewed and never actually paid off by the borrower.
C)  A revolver is a loan made by a government agency that requires continual investment by the borrower in the country where the loan is made.
D)  A revolver is a loan fund that is made to an industry group that allows any member of the industry group to draw money when it is needed and then to repay the loan so that others in the industry group can borrow from the loan fund.E) None of the above
F) A) and B)

Question 15

The two kinds of financing that MNCs seek in international markets are:

Accepted Answer

A)  short-term and long-term.
B)  debt and equity.
C)  short-term debt and long-term equity.
D)  long-term debt and short-term equity.E) B) and D)
F) None of the above

Question 16

What are "keiretsus"?

Accepted Answer

A)  Keiretsus are Japanese banks that specialize in financing Japanese firms.
B)  Keiretsus are large Japanese firms that consume most of the bank financing that is available in Japan.
C)  Keiretsus are large industry groups in Japan that are supported by specific banks that provide financing and monitoring services to entities within the group.
D)  Keiretsus are large Japanese banks that lend primarily to foreign firms.E) None of the above
F) A) and B)

Question 17

A ________________ is a USD-denominated bond issued in the United States.

Accepted Answer

A)  foreign bond
B)  Eurobond
C)  domestic bond
D)  Yankee bondE) B) and C)
F) A) and B)

Question 18

If a firm's projects are risky,its cost of capital will:

Accepted Answer

A)  be lower.
B)  not be affected.
C)  be higher.
D)  reflect the potential profit from those projects.E) None of the above
F) C) and D)

Question 19

MNCs face _________________ and _____________________ that can make their cash flows vulnerable that are not faced by domestic firms.

Accepted Answer

A)  country risk and currency risk
B)  political risk and economic risk
C)  competition and criminal activities
D)  declining asset value and rising inflationE) All of the above
F) None of the above

Question 20

What is a shelf registration?

Accepted Answer

A)  A shelf registration is an arrangement whereby a firm agrees to a series of loans from a syndicate that will be made over a short period of time and then repaid over a longer period of time.
B)  A shelf registration is a process by which a firm is allowed to issue any number of securities without specific approval so long as the total amount of securities does not exceed a prescribed amount.
C)  A shelf registration allows a firm to issue securities in several countries at the same time.
D)  A shelf registration allows a firm to obtain approval for a specified range of securities to be issued at a later date rather than having to register and have approved each security at the time it is issued.E) B) and C)
F) C) and D)

Exam 10: Long-Term Financing

The two kinds of financing that MNCs seek in international markets are:

Correct AnswerverifiedShow Answer

MNCs tend to be relatively large organizations,and their size gives them two advantages in accessing financial markets.These advantages are that:

Correct AnswerverifiedShow Answer

What are "keiretsus"?

Correct AnswerverifiedShow Answer

Standard financial theory advocates that MNCs separate their financing and investing decisions:

Correct AnswerverifiedShow Answer

How does listing existing shares of an MNC on multiple markets assist the MNC in raising capital?

Correct AnswerverifiedShow Answer

A ________________ is a USD-denominated bond issued in the United States.

Correct AnswerverifiedShow Answer

What is a revolver?

Correct AnswerverifiedShow Answer

At what point in the development of an entity is venture capital financing usually provided?

Correct AnswerverifiedShow Answer

The cost of equity can be inferred by using the capital asset pricing model which:

Correct AnswerverifiedShow Answer

What is the primary drawback of external equity?

Correct AnswerverifiedShow Answer

Why have U.S.firms preferred to finance their operations through public debt markets rather than through bank loans?

Correct AnswerverifiedShow Answer

A bond issued in a country in a currency other than the currency of the country where it is issued is considered to be a:

Correct AnswerverifiedShow Answer

MNCs face _________________ and _____________________ that can make their cash flows vulnerable that are not faced by domestic firms.

Correct AnswerverifiedShow Answer

What is a shelf registration?

Correct AnswerverifiedShow Answer

Within reasonable parameters,if a firm increases its debt as a proportion of its capital structure:

Correct AnswerverifiedShow Answer

If a firm's projects are risky,its cost of capital will:

Correct AnswerverifiedShow Answer

A bond issued outside of the U.S.in the local currency is considered to be a:

Correct AnswerverifiedShow Answer

MNCs might raise equity funds through an IPO or through a seasoned offering.What is the difference between an IPO and a seasoned offering?

Correct AnswerverifiedAn IPO is an initial public offering or ...View AnswerShow Answer

An attraction of internal equity is that _____________________ but a disadvantage is that _____________________________.

Correct AnswerverifiedShow Answer

Why are Eurobonds becoming more popular ways for MNCs to borrow money?

Correct AnswerverifiedShow Answer

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MNCs face _ and _____ that can make their cash flows vulnerable that are not faced by domestic firms.

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An IPO is an initial public offering or ...
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An attraction of internal equity is that _ but a disadvantage is that _________.

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