Problem 1: Suppose that a foreign project has a beta of 1.12, the risk free return is 9.3% and the required return on the market is estimated at 18%. Then the cost of capital for the project is
a. 17.21%
b. 21.37%
c. 19.04%
d. 20.03%
Problem 2: The cost of capital for a project depends on
a. the correlation between returns on the project and returns on a domestic market index
b. the correlation between returns on the project and returns on a globally diversified portfolio
c. the correlation between returns on the project and returns on the firm's other activities
d. whether the price of risk is set on a domestic or worldwide basis
Problem 3: The rate(s) at which investors capitalize the returns on foreign projects depends on all of the following EXCEPT
a. whether shareholders are internationally diversified
b. the relative costs of international diversification for the MNC and for individual investors
c. the extent to which domestic systematic risk is unsystematic from a global standpoint
d. the correlation between equity returns on different markets