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market multinational.

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Choose an emerging market multinational. Conduct some research about where the company raises capital to fund its international growth. Do you think the cost of capital incurred by the company is:

1. Comparable to its domestic counterparts? Explain.

2. Comparable to U.S. or other industrialized country firms in its comparable industry?

In response to your peers’ posts, discuss the benefits and threats you see from the movement of the foreign exchange rate from their chosen companies’ source of capital.

Hint: Cemex of Mexico, Vale of Brazil, Haier of China, Tata Group of India, and Thai Union Frozen Group of Thailand are a few successful MNEs.

 
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Cost of Equity

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Cost of Equity. Illinois Co. is a U.S. firm that plans to expand its business overseas. It plans to use all equity to be obtained in the United States to finance a new project. The project’s cash flows are not affected by U.S. interest rates. Just before Illinois Co. obtains new equity, the risk-free interest rate in the United States rises. Will the change in interest rates increase, decrease, or have no effect on the required rate of return on the project?

 
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traditional multinational firm and an internationalizing SME

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What do you perceive to be the critical differences between a traditional multinational firm and an internationalizing SME?

 
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abnormal rates of return

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1. Compute the abnormal rates of return for the following stocks during period t (ignore differential systematic risk):

Stock                     Rit                           Rmt

B                             11.5%                    4.0%

F                              10.0                        8.5

T                              14.0                        9.6

C                             12.0                        15.3

E                              15.9                        12.4

Rit= return for stock i during period t

Rmt for the aggregate market during period t

2. Compute the abnormal rates of return for the five stocks in Problem 1 assuming the following systematic risk measure (betas):

Stock                     Bi

B                             0.95

F                              1.25

T                              1.45

C                             0.70

E                              -0.30

 
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