which of the following statements about wacc of a multinational firm (mnf) vs th
ID: 2756018 • Letter: W
Question
which of the following statements about wacc of a multinational firm (mnf) vs that of a domestic firm (df) is false?
(a)Being usually of larger size,MNF will have a larger need for cpital which can increase its WACC.
(b)Being usually of larger size,MNF will have a better termes or credit rating on debt, which can decrease its WACC.
(C)MNF has more access to international capital markets which can lower its WACC.
(d)MNF has more exposure to exchange rate risk, which can lower its WACC.
(e)MNF has more exposure to country risk, which can increase its WACC.
Explanation / Answer
Answer is (d) MNF has more exposure to exchange rate risk, which can lower its WACC.
MNCs may be more exposed to exchange rate fluctuations, such that their cash flows may be more uncertain and their probability of bankruptcy is higher. More risk implies that the Beta of the equity will also be higher which will increase the risk premium and utlimately increase the Cost of capital.
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