China Threat
BA 789
CORPORATE FINANCIAL MANAGEMENT
QUIZ 4 CHAPTERS 11 AND 13 and extra credit CHAPTER 14
P. A. BEISER
NOTE: THERE ARE EXTRA CREDIT POINTS (10 POINTS IN TOTAL EXTRA CREDIT)
True False: (5 points each).
Please answer the following questions as True (T) or False (F):
1. The cost of each type of capital depends on the risk-free cost of that type of funds, the business risk of the firm, and the financial risk of the firm.
2. Business risk is the risk to the firm of being unable to cover required financial obligations.
3. The weighted average cost of capital (WACC) reflects the expected average future cost of funds over the long run.
4. Since retained earnings is a more expensive source of financing than debt and preferred stock, the weighted average cost of capital will fall once retained earnings have been exhausted.
5. As the volume of financing increases, the costs of the various types of financing will decrease, reducing the firm's weighted average cost of capital.
6. Fluctuations in foreign exchange markets can affect foreign revenues and profits of a multinational company, but they have no impact on its overall value.
7. FASB No. 52 requires U.S. multinationals first to convert the financial statement accounts of foreign subsidiaries into their functional currency and then to translate the accounts into the parent firm's currency using the all-current-rate method.
8. The forward exchange rate is the rate of exchange between two currencies on any given day.
9. Accounting exposure is the risk resulting from the effects of changes in foreign exchange rates on the translated value of a firm's financial statement accounts denominated in a given foreign currency.
10. Hedging strategies are techniques used to offset or protect against risk; in the international context...
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