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    C14 - Tutorial Ques PDF

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    Jilynn Seah
    This document contains tutorial questions from Chapter 14 on raising equity and debt globally. It includes two questions about the benefits and disadvantages of cross-listing shares on multiple stock markets and the advantages and disadvantages of localization. It also provides a multi-part finance problem calculating the weighted average cost of capital for a French multinational company with various debt components denominated in euros, British pounds, Swiss francs, and asking which debt instrument a Turkish company exporting to Europe should issue given exchange rate expectations.

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    C14 - Tutorial Ques PDF

    Uploaded by

    Jilynn Seah
    73 views2 pages
    This document contains tutorial questions from Chapter 14 on raising equity and debt globally. It includes two questions about the benefits and disadvantages of cross-listing shares on multiple stock markets and the advantages and disadvantages of localization. It also provides a multi-part finance problem calculating the weighted average cost of capital for a French multinational company with various debt components denominated in euros, British pounds, Swiss francs, and asking which debt instrument a Turkish company exporting to Europe should issue given exchange rate expectations.

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    This document contains tutorial questions from Chapter 14 on raising equity and debt globally. It includes two questions about the benefits and disadvantages of cross-listing shares on multiple stock markets and the advantages and disadvantages of localization. It also provides a multi-part finance problem calculating the weighted average cost of capital for a French multinational company with various debt components denominated in euros, British pounds, Swiss francs, and asking which debt instrument a Turkish company exporting to Europe should issue given exchange rate expectations.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    73 views2 pages

    C14 - Tutorial Ques PDF

    Uploaded by

    Jilynn Seah
    This document contains tutorial questions from Chapter 14 on raising equity and debt globally. It includes two questions about the benefits and disadvantages of cross-listing shares on multiple stock markets and the advantages and disadvantages of localization. It also provides a multi-part finance problem calculating the weighted average cost of capital for a French multinational company with various debt components denominated in euros, British pounds, Swiss francs, and asking which debt instrument a Turkish company exporting to Europe should issue given exchange rate expectations.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Tutorial Questions for WEEK 13

    CHAPTER 14

    RAISING EQUITY AND DEBT GLOBALLY

    13. Cross-Listing. What are the main benefits and disadvantages to firms that cross-list their
    shares on multiple stock markets?

    15. Localization. What are the main advantages of localization and main disadvantages of
    localization?

    Problem 14.7

    "M.M. Monroe Manufacturing, Inc., a French multinational company, has the following debt
    components on its balance sheet. M.M. Monroe’s finance staff estimates their cost of equity
    to be 15%. Income taxes are 25% around the world after allowing for credits. Calculate
    M.M.Monroe’s weighted average cost of capital based on the below mentioned capital
    structure components:

    Assumption Value (Given)


    Pre-tax Cost (%)
    Tax rate 25.00%
    25-year euro bonds €10,000,000 6.000%
    5-year euro notes €4,000,000 4.000%
    Shareholders' equity €50,000,000 15.000%
    10-year British pound bonds (GBP) £10,000,000 5.000%
    20-year Swiss franc bonds (CHF) 25,000,000 2.000%
    Spot rate (€/£) 1.4100
    Spot rate (¥/CHF) 0.9600
    Spot rate (CHF/€) 138.00

    where, Post-tax rate = Pre-tax(1-t)


    WACC = Proportion * Post-tax rate

    Problem 14.16

    ChocTurk Co. is a Turkish chocolate manufacturer that exports its products to neighboring
    European nations. Since its clients are mostly European, ChocTurk Co. evaluates all business
    results and financial transactions in euros. It needs to borrow €5,000,000 or the foreign
    currency equivalent for four years. It decides to issue bonds, making one annual payment at
    the end of each year.

    The following are the alternatives:

    a. Sell Japanese yen bonds at par yielding 2% per annum. The current exchange rate is ¥136/€,
    and the yen is expected to strengthen against the euro by 3% per annum.

    FIN3034 – INTERNATIONAL FINANCIAL MANAGEMENT


    Tutorial Questions for WEEK 13

    b. Sell Sterling-denominated bonds at par yielding 5% per annum. The current exchange rate
    is €0.7350/£, and the pound is expected to weaken against the euro by 4% per annum.

    c. Sell euro bonds at par yielding 4% per annum.

    Which course of action do you recommend Choco Turk Co. take and why?

    You are requested to manually calculate the IRR for this problem usually a range of +/- 1%
    will be an acceptable answer.

    Japanese Sterling Euro


    Alternatives yen bonds pound bonds
    bonds
    Coupon rate 2.000% 5.000% 4.000%
    Current cross rate 0.7350
    136.00
    Expected change in the value of the foreign 3.000% -4.000% 0.000%
    currency
    Principal needed by ChocoTurk Co. €5,000,000
    Refer to Formulae Table for Appreciation and Depreciation Formulae

    Reference to the exchange rate for Sterling pound-denominated bonds €0.7350/£, and the
    pound is expected to weaken against the euro by 4% per annum.

    0.735 0.7067 0.7362 0.7669 0.7988 (EURO/POUND)


    1.361 1.415 1.471 1.530 1.592 (POUND/EURO)

    FIN3034 – INTERNATIONAL FINANCIAL MANAGEMENT

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