The document discusses how multinational corporations determine their cost of capital and establish optimal capital structures. It explains that an MNC's cost of capital may differ from domestic firms due to their size, access to international markets, diversification across countries, and exposure to exchange rate and country risks. The cost of capital also varies by country based on interest rates, risk premiums, and tax laws. An MNC considers these corporate and country characteristics when deciding how much debt and equity to use in different subsidiaries to minimize its overall cost of capital.
This presentation is an overview of Capital Structure Theories.
Dr. Soheli Ghose ( Ph.D (University of Calcutta), M.Phil, M.Com, M.B.A., NET (JRF), B. Ed).
Assistant Professor, Department of Commerce,St. Xavier's College, Kolkata.
Guest Faculty, M.B.A. Finance, University of Calcutta, Kolkata
presentation slides on international funds flow prepared by the group members in a new way thanks guys for providing such a beneficial, knowledgeable slides.
This presentation is an overview of Capital Structure Theories.
Dr. Soheli Ghose ( Ph.D (University of Calcutta), M.Phil, M.Com, M.B.A., NET (JRF), B. Ed).
Assistant Professor, Department of Commerce,St. Xavier's College, Kolkata.
Guest Faculty, M.B.A. Finance, University of Calcutta, Kolkata
presentation slides on international funds flow prepared by the group members in a new way thanks guys for providing such a beneficial, knowledgeable slides.
Empowering the Unbanked: The Vital Role of NBFCs in Promoting Financial Inclu...Vighnesh Shashtri
In India, financial inclusion remains a critical challenge, with a significant portion of the population still unbanked. Non-Banking Financial Companies (NBFCs) have emerged as key players in bridging this gap by providing financial services to those often overlooked by traditional banking institutions. This article delves into how NBFCs are fostering financial inclusion and empowering the unbanked.
Poonawalla Fincorp and IndusInd Bank Introduce New Co-Branded Credit Cardnickysharmasucks
The unveiling of the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card marks a notable milestone in the Indian financial landscape, showcasing a successful partnership between two leading institutions, Poonawalla Fincorp and IndusInd Bank. This co-branded credit card not only offers users a plethora of benefits but also reflects a commitment to innovation and adaptation. With a focus on providing value-driven and customer-centric solutions, this launch represents more than just a new product—it signifies a step towards redefining the banking experience for millions. Promising convenience, rewards, and a touch of luxury in everyday financial transactions, this collaboration aims to cater to the evolving needs of customers and set new standards in the industry.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
Introduction to Indian Financial System ()Avanish Goel
The financial system of a country is an important tool for economic development of the country, as it helps in creation of wealth by linking savings with investments.
It facilitates the flow of funds form the households (savers) to business firms (investors) to aid in wealth creation and development of both the parties
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
BYD SWOT Analysis and In-Depth Insights 2024.pptxmikemetalprod
Indepth analysis of the BYD 2024
BYD (Build Your Dreams) is a Chinese automaker and battery manufacturer that has snowballed over the past two decades to become a significant player in electric vehicles and global clean energy technology.
This SWOT analysis examines BYD's strengths, weaknesses, opportunities, and threats as it competes in the fast-changing automotive and energy storage industries.
Founded in 1995 and headquartered in Shenzhen, BYD started as a battery company before expanding into automobiles in the early 2000s.
Initially manufacturing gasoline-powered vehicles, BYD focused on plug-in hybrid and fully electric vehicles, leveraging its expertise in battery technology.
Today, BYD is the world’s largest electric vehicle manufacturer, delivering over 1.2 million electric cars globally. The company also produces electric buses, trucks, forklifts, and rail transit.
On the energy side, BYD is a major supplier of rechargeable batteries for cell phones, laptops, electric vehicles, and energy storage systems.
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
Exploring Abhay Bhutada’s Views After Poonawalla Fincorp’s Collaboration With...beulahfernandes8
The financial landscape in India has witnessed a significant development with the recent collaboration between Poonawalla Fincorp and IndusInd Bank.
The launch of the co-branded credit card, the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card, marks a major milestone for both entities.
This strategic move aims to redefine and elevate the banking experience for customers.
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
where can I find a legit pi merchant onlineDOT TECH
Yes. This is very easy what you need is a recommendation from someone who has successfully traded pi coins before with a merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi network coins and resell them to Investors looking forward to hold thousands of pi coins before the open mainnet.
I will leave the telegram contact of my personal pi merchant to trade with
@Pi_vendor_247
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
2. A17 - 2
Chapter Objectives
• To explain how corporate and
country characteristics influence an
MNC’s cost of capital;
• To explain why there are differences in the
costs of capital across countries; and
• To explain how corporate and country
characteristics are considered by an MNC
when it establishes its capital structure.
3. A17 - 3
Cost of Capital
• A firm’s capital consists of equity
(retained earnings and funds obtained by
issuing stock) and debt (borrowed funds).
• The cost of equity reflects an opportunity
cost, while the cost of debt is reflected in
interest expenses.
• Firms want a capital structure that will
minimize their cost of capital, and hence
the required rate of return on projects.
4. A17 - 4
• A firm’s weighted average cost of capital
kc = ( D )kd (1 _
t ) + ( E )ke
D+E D+E
where D is the amount of debt of the firm
E is the equity of the firm
kd is the before-tax cost of its debt
t is the corporate tax rate
ke is the cost of financing with equity
Cost of Capital
5. A17 - 5
• A firm’s weighted average cost of capital
kc = ( D ) kd (1 _
t ) + ( E ) ke
D+E D+E
If debt D = 30 and Equity E = 70, return on
debt = 10%, return on equity = 15% and
tax rate = 30% Calculate company cost
of capital.
Cost of Capital Problem
7. A17 - 7
• The interest payments on debt are tax
deductible. However, as interest expenses
increase, the probability of bankruptcy will
increase too.
• It is favorable to increase the use of debt
financing until the point at which the
bankruptcy probability becomes large
enough to offset the tax advantage of
using debt.
Cost of Capital
8. A17 - 8
Cost of Capital for MNCs
• The cost of capital for MNCs may differ
from that for domestic firms because of
the following differences.
Size of Firm. Because of their size, MNCs
are often given preferential treatment by
creditors. They can usually achieve
smaller per unit flotation costs too.
9. A17 - 9
Acess to International Capital Markets.
MNCs are normally able to obtain funds
through international capital markets,
where the cost of funds may be lower.
International Diversification. MNCs may
have more stable cash inflows due to
international diversification, such that
their probability of bankruptcy may be
lower.
Cost of Capital for MNCs
10. A17 - 10
Exposure to Exchange Rate Risk. MNCs
may be more exposed to exchange rate
fluctuations, such that their cash flows
may be more uncertain and their
probability of bankruptcy higher.
Exposure to Country Risk. MNCs that have
a higher percentage of assets invested in
foreign countries are more exposed to
country risk.
Cost of Capital for MNCs
11. A17 - 11
• The capital asset pricing model (CAPM)
can be used to assess how the required
rates of return of MNCs differ from those
of purely domestic firms.
• According to CAPM, ke = Rf + β (Rm – Rf)
where ke = the required return on a stock
Rf = risk-free rate of return
Rm = market return
β = the beta of the stock
Cost of Capital for MNCs
12. A17 - 12
• A stock’s beta represents the sensitivity of
the stock’s returns to market returns, just
as a project’s beta represents the
sensitivity of the project’s cash flows to
market conditions.
• The lower a project’s beta, the lower its
systematic risk, and the lower its required
rate of return, if its unsystematic risk can
be diversified away.
Cost of Capital for MNCs
13. A17 - 13
• An MNC that increases its foreign sales
may be able to reduce its stock’s beta, and
hence the return required by investors.
This translates into a lower overall cost of
capital.
• However, MNCs may consider
unsystematic risk as an important factor
when determining a foreign project’s
required rate of return.
Cost of Capital for MNCs
14. A17 - 14
• Hence, we cannot be certain if an MNC will
have a lower cost of capital than a purely
domestic firm in the same industry.
Cost of Capital for MNCs
15. A17 - 15
Costs of Capital Across Countries
• The cost of capital may vary across
countries, such that:
MNCs based in some countries may have
a competitive advantage over others;
MNCs may be able to adjust their
international operations and sources of
funds to capitalize on the differences; and
MNCs based in some countries may have
a more debt-intensive capital structure.
16. A17 - 16
Costs of Capital Across Countries
• The cost of debt to a firm is primarily
determined by the prevailing risk-free
interest rate of the borrowed currency and
the risk premium required by creditors.
• The risk-free rate is determined by the
interaction of the supply and demand for
funds. It may vary due to different tax
laws, demographics, monetary policies,
and economic conditions.
17. A17 - 17
Costs of Capital Across Countries
• The risk premium compensates creditors
for the risk that the borrower may be
unable to meet its payment obligations.
• The risk premium may vary due to
different economic conditions,
relationships between corporations and
creditors, government intervention, and
degrees of financial leverage.
18. A17 - 18
Costs of Capital Across Countries
• Although the cost of debt may vary across
countries, there is some positive
correlation among country cost-of-debt
levels over time.
19. A17 - 19
Costs of Capital Across Countries
• A country’s cost of equity represents an
opportunity cost – what the shareholders
could have earned on investments with
similar risk if the equity funds had been
distributed to them.
• The return on equity can be measured by
the risk-free interest rate plus a premium
that reflects the risk of the firm.
20. A17 - 20
Costs of Capital Across Countries
• A country’s cost of equity can also be
estimated by applying the price/earnings
multiple to a given stream of earnings.
• A high price/earnings multiple implies that
the firm receives a high price when selling
new stock for a given level of earnings.
So, the cost of equity financing is low.
21. A17 - 21
Risk and Return – Portfolio Theory
• Harry Markowitz’s portfolio theory can be
used to estimate returns required by
investors in different stock market
investments. Investor can reduce standard
deviation of portfolio returns by choosing
stocks that do not move exactly together.
22. A17 - 22
Portfolio theory
• Suppose investment in shares of Coca-cola or
Reebok has to be made. Reebok offers an
expected return of 20% and Coca-cola 10%. Std.
deviation of returns is 31.5% for Coca-cola and
58.5% for Reebok. The correlation between the
returns of coca-coal and Reebok has been 0.20.
• What will be the expected return on the portfolio
and what will be the portfolio standard deviation,
if it is decided to invest 65% in Coca-cola and
35% in Reebok.
23. A17 - 23
Two security case
• Portfolio risk can be formally defined as σp =
• √X2
x σ2
x +X2
yσ2
y + 2XxXy(rxy σx σy)
• Where σp = Portfolio standard deviation
Xx Xy =% of total portfolio value in stock X,Y
σx ,σy = Standard deviation of stock X and Y and rxy =
correlation coefficient of X and Y
• Note :rxy σx σy = Covxy
24. A17 - 24
Expected return - Solution
• Reebok expected return = 20%
• Coca cola = 10%
• Investment in Reebok = 35%
• Investment in Coca Cola = 65%
• Expected return on portfolio =
• (0.35 x 0.20) + (0.65 x 0.10) = 0.07 + 0.065 =
0.135 = 13.5%
25. A17 - 25
Solution
• Variance = [(0.652
) x (31.52
)] +
• [(0.352
) x (58.52
)] +
• 2(0.65 x 0.35 x 0.2 x 31.5 x 58.5)
• = 1006.1
• Std.deviation = 31.7
26. A17 - 26
Costs of Capital Across Countries
• The costs of debt and equity can be
combined, using the relative proportions
of debt and equity as weights, to derive an
overall cost of capital.
27. A17 - 27
The MNC’s
Capital Structure Decision
• The overall capital structure of an MNC is
essentially a combination of the capital
structures of the parent body and its
subsidiaries.
• The capital structure decision involves the
choice of debt versus equity financing,
and is influenced by both corporate and
country characteristics.
28. A17 - 28
The MNC’s
Capital Structure Decision
Corporate Characteristics
• Stability of cash flows. MNCs with more
stable cash flows can handle more debt.
• Credit risk. MNCs that have lower credit
risk have more access to credit.
• Access to retained earnings. Profitable
MNCs and MNCs with less growth may be
able to finance most of their investment
with retained earnings.
29. A17 - 29
The MNC’s
Capital Structure Decision
• Agency problems. Host country
shareholders may monitor a subsidiary,
though not from the parent’s perspective.
• Guarantees on debt. If the parent backs
the subsidiary’s debt, the subsidiary may
be able to borrow more.
Corporate Characteristics
30. A17 - 30
Country Characteristics
• Stock restrictions. MNCs in countries
where investors have less investment
opportunities may be able to raise equity
at a lower cost.
• Interest rates. MNCs may be able to obtain
loanable funds (debt) at a lower cost in
some countries.
The MNC’s
Capital Structure Decision
31. A17 - 31
• Country risk. If the host government is
likely to block funds or confiscate assets,
the subsidiary may prefer debt financing.
The MNC’s
Capital Structure Decision
• Strength of currencies. MNCs tend to
borrow the host country currency if they
expect it to weaken, so as to reduce their
exposure to exchange rate risk.
Country Characteristics
32. A17 - 32
• Tax laws. MNCs may use more local debt
financing if the local tax rates (corporate
tax rate, withholding tax rate, etc.) are
higher.
The MNC’s
Capital Structure Decision
Country Characteristics
33. A17 - 33
Impact of Multinational Capital Structure
Decisions on an MNC’s Value
( ) ( )[ ]
( )∑
∑
+
×
=
n
t
t
m
j
tjtj
k1=
1
,,
1
ERECFE
=Value
E (CFj,t ) = expected cash flows in
currency j to be received by the U.S. parent at the
end of period t
E (ERj,t ) = expected exchange rate at
which currency j can be converted to dollars at
Parent’s Capital Structure
Decisions
34. A17 - 34
• Introduction to the Cost of Capital
¤ Comparing the Costs of Equity and Debt
• Cost of Capital for MNCs
Size of Firm
Access to International Capital Markets
International Diversification
Exposure to Exchange Rate Risk
Exposure to Country Risk
Chapter Review
35. A17 - 35
Chapter Review
• Cost of Capital for MNCs … continued
¤ Cost of Capital Comparison Using the
CAPM
¤ Implications of the CAPM for an MNC’s
Risk