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Ch. 17 Q%26A - International Capital Structure and the Cost...

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Click to edit Master subtitle style 6/6/11 International Capital Structure and the Cost of Capital Ch. 17 Questions
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6/6/11 Question 2 Explain why and how a firm’s cost of capital may decrease when the firm’s stock is cross- listed on foreign stock exchanges
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6/6/11 Answer Question 2 In a perfect market, firms would be indifferent between raising funds abroad or at home, however when markets are imperfect international financing can lower the firm’s cost of capital. Also, when a firm’s stock begins to be traded overseas on international markets the required return on the stock will likely decrease. This is because the stock will be priced accorded to international systematic risk versus local systematic risk, and typically international
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6/6/11 Answer Question 2 Cont. A company can benefit from cross-border listings of its shares in several ways. For example, one advantage is that the company can expand its potential investor base, which will lead to a higher stock price and a lower cost of capital.
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6/6/11 Question 6 Discuss how the cost of capital is determined in segmented versus integrated capital markets.
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6/6/11 Question 6 Answer The main part to computing cost of capital is in computing the cost of equity. This is
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