ch15 - 15-1Chapter 15Chapter 15Multinational Capital...

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Unformatted text preview: 15-1Chapter 15Chapter 15Multinational Capital Structure Multinational Capital Structure and Cost of Capitaland Cost of CapitalLearning objectivesThe MNCs optimal capital structureProject valuation and the cost of capital The impact of market imperfections WACC versus APV Systematic versus unsystematic risks Sources of funds for multinational operationsThe international evidenceButler / Multinational Finance4e (2008) John Wiley & Sons, Inc.15-2Systematic vs unsystematic risksOnly systematicor nondiversifiableoperating risks should be reflected in capital costs-Capital costs are increased if these risks are positively related to the market portfolio-Capital costs are decreased if these risks are negatively related to the market portfolioOperating risks that are unsystematicor diversifiableshould not be priced by investors and should not be reflected in capital costsButler / Multinational FinanceChapter 15 Multinational capital structure and cost of capitalCapital structure and cost of capitalProject valuation and cost of capitalSources of funds for multinational operationsThe international evidence on capital structureMMs irrelevance propositionWeighted average cost of capitalAdjusted present valueThe cost of capital in emerging markets 15-3Country risks and equity returnsEquity returns are related to country risks Erb, Harvey and Viskanta find-Prices go up (down) following a decrease (increase) in country risk-Countries with high country risk tend to have more volatile returns-Countries with high country risk tend to have lower betas(systematic risks)Erb, Harvey, & Viskanta, Political Risk, Financial Risk & Economic Risk, Financial Analysts Journal, 1996.Butler / Multinational FinanceChapter 15 Multinational capital structure and cost of capitalCapital structure and cost of capitalProject valuation and cost of capitalSources of funds for multinational operationsThe international evidence on capital structureMMs irrelevance propositionWeighted average cost of capitalAdjusted present valueThe cost of capital in emerging markets 15-4Liberalizations and the cost of capitalLiberalizations tend to benefit firms and investors in the liberalized marketFinancial market liberalizations tend to-Increase the correlation of emerging market and world market returns-Have little impact on emerging market return volatility-Decrease local firms capital costs by as much as 1 percentBekaert & Harvey, Foreign Speculators and Emerging Equity Markets, Journal of Finance, 2000....
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ch15 - 15-1Chapter 15Chapter 15Multinational Capital...

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