Topic 3. MNC's financing decisions

What method gives you formula how to incorporate country risk into capital budgeting analysis?

• Scoring method

• Using different indices

• Regression analysis

• No such method exist

Using real options in capital budgeting analysis...

• make NPV of the project higher

• make NPV of the project lower

• gives more flexibility to capital budgeting analysis

• may lead to accepting potentially unprofitable projects

If you can issue bonds at 10% coupon rate or issue shares at 10% dividend yield...

• it is more profitable to issue bonds

• it is more profitable to issue shares

• your choice will depend on income tax and dividend tax rates

• your choice will depend on leverage level

If your company needs a small amount of money, the cheapest source is

• to take a credit

• to issue bonds

• to issue shares

• use leasing

The following approach advise you not to pay dividends at all:

• Modigliani-Miller Model

• Bird-in-Hand Theory

• Residual theory

• No correct answer

If you want to reduce risk of investing abroad, you should

• consider long time horizon

• borrow on local markets

• use low leverage level

• hire personnel in the country of the parent company

Calculating the yield of a bond is similar to

• calculating net present value

• calculating internal rate of return

• calculating modified internal rate of return

• calculating adjusted present value

CAPM is used...

• ... as an alternative of NPV

• ... to calculate amount of dividends paid

• ... to calculate appropriate yield of a share

• ... to calculate the cost of a loan

Effective interest rate takes into account...

• foreign currency fluctuations

• inflation rates

• home currency fluctuations

• tax rates abroad

In WACC formula cost of what source of capital is reduced for taxes paid?

• new shares

• preferred shares

• retained earnings

• debt