1) Brimmo Motorcycles Inc., a U.S.-based firm, manufactures and sells electric m
ID: 2783550 • Letter: 1
Question
1) Brimmo Motorcycles Inc., a U.S.-based firm, manufactures and sells electric motorcycles both domestically and internationally. A sudden and unexpected depreciation of the U.S. dollar should allow sales to ________ at home and ________ abroad. (Assume other factors remain unchanged.)
A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase
2) The weighted average cost of capital (WACC) is:
A) the required rate of return for all of a firm's capital investment projects.
B) the actual rate of return for a firm's average risk projects.
C) not applicable for use by MNE.
D) None of the above
3) A firm whose equity has a beta of 1.0:
A) has greater systematic risk than the market portfolio.
B) stands little chance of surviving in the international financial market place.
C) has same returns as the market.
D) None of the above is true.
4) If a company accurately predict it's cost of equity, then:
A) the firm's wacc will also be inaccurate.
B) the firm may not be using the proper interest rate to estimate NPV.
C) the firm may correctly accept projects based on decisions made using the cost of capital computed with a correct cost of equity.
D) All of the above are true.
5) Which of the following statements is NOT true regarding beta?
A) Beta will have a value of less than 1.0 if the firm's returns are less volatile than the market.
B) Beta will have a value of greater than 1.0 if the firm's returns are more volatile than the market.
C) Beta will have a value of equal to 1.0 if the firm's returns are of equal volatility to the market.
D) All of the statements above are true.
6) Which of the following is NOT a key variable in the equation for the capital asset pricing model?
A) the risk-free rate of interest
B) the expected rate of return on the market portfolio
C) the market risk premium
D) All are important components of the CAPM
Explanation / Answer
A depreciation of US dollar increases the cost of imports so there will be an increase in inflation but it makes the exports becomes cheaper. Therefore domestic firms can increase its sales by exporting to foreign country but due to higher inflation ( supply of more currecy ) creates higher demand for the domestic sales. The answer is A.
Weighted average cost of capital is the minimum rate of return that the company must earn from the overall projects in order to satisfy all the fund providers such as equity holders, debentures, and preference shareholders. Therefore the answer is A
A beta of 1 from a company equity shows that the security's price is moving along with the market returns. A company equity beta is less than 1 shows that the equity is less volatile than the market volatility and it indicates the share can be purchased because of less volatility. . A beta of greater than 1 indicates that the security's price is more volatile than the market returns. Therefore the Answer C
The first 3 parts have been answered.
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