a. If Sports Experts expands into Thailand, do you think its cost of capital will be greater or lower than its cost of capital when operating solely in the US? Explain your answer.
Sports Experts’ cost of capital will probably be greater than the cost of capital of sport shoes manufacturers operating in the U.S. because of Sports Experts’ expansion into Thailand. Typically, an MNC has access to international capital markets, and international diversification are advantageous to an MNC’s cost of capital. Nevertheless, Sports Experts is still relatively small compared to most U.S. sport shoes manufacturers and may as a result not obtain favored treatment from prospective creditors. In addition, expanding into Thailand will give Sports Experts …show more content…
According to the CAPM, how would Sports Experts’ required rate of return be affected by an expansion into Thailand? How do you reconcile this result with your answer to question a? Do you think Sports Experts should use the required rate of return resulting from the CAPM to discount the cash flows of the Thai subsidiary to determine its …show more content…
If Sports Experts borrows funds to support its Thai subsidiary, how would this affect its cost of capital? Why?
If Sports Experts borrows funds in Thailand to support its Thai subsidiary, its cost of capital would most likely increase. For the reason that the cost of debt in Thailand is greater than that in the U.S.
d. Given the high level of interest rates in Thailand, the high level of exchange rate risk, and the high level of country risk, do you think Sports Experts would be more or less likely to use debt in its capital structure as a result of its expansion into Thailand? Why?
Assumed the high levels of interest rates, exchange rate risk, and country risk involved in Thailand, it is unclear whether Sports Experts will use more or less debt in its capital structure because of its expansion into Thailand. There is high cost of borrowing funds in Thailand, which might deter Sports Experts from gaining access to the capital markets in Thailand. On the other hand, beliefs of a future depreciation of the Thai baht may encourage Sports Experts to borrow funds in instead of borrowing in the U.S. in order to reduce the baht-denominated cash flows that will be subsequently remitted back to the U.S. In addition, if Sports Experts is unprotected because of potential country risk. Sports Experts might consider to use debt financing in Thailand to give Thai creditors a candid interest in ensuring that Sports Experts is treated impartially by the government in Thailand. The
Sports Experts’ cost of capital will probably be greater than the cost of capital of sport shoes manufacturers operating in the U.S. because of Sports Experts’ expansion into Thailand. Typically, an MNC has access to international capital markets, and international diversification are advantageous to an MNC’s cost of capital. Nevertheless, Sports Experts is still relatively small compared to most U.S. sport shoes manufacturers and may as a result not obtain favored treatment from prospective creditors. In addition, expanding into Thailand will give Sports Experts …show more content…
According to the CAPM, how would Sports Experts’ required rate of return be affected by an expansion into Thailand? How do you reconcile this result with your answer to question a? Do you think Sports Experts should use the required rate of return resulting from the CAPM to discount the cash flows of the Thai subsidiary to determine its …show more content…
If Sports Experts borrows funds to support its Thai subsidiary, how would this affect its cost of capital? Why?
If Sports Experts borrows funds in Thailand to support its Thai subsidiary, its cost of capital would most likely increase. For the reason that the cost of debt in Thailand is greater than that in the U.S.
d. Given the high level of interest rates in Thailand, the high level of exchange rate risk, and the high level of country risk, do you think Sports Experts would be more or less likely to use debt in its capital structure as a result of its expansion into Thailand? Why?
Assumed the high levels of interest rates, exchange rate risk, and country risk involved in Thailand, it is unclear whether Sports Experts will use more or less debt in its capital structure because of its expansion into Thailand. There is high cost of borrowing funds in Thailand, which might deter Sports Experts from gaining access to the capital markets in Thailand. On the other hand, beliefs of a future depreciation of the Thai baht may encourage Sports Experts to borrow funds in instead of borrowing in the U.S. in order to reduce the baht-denominated cash flows that will be subsequently remitted back to the U.S. In addition, if Sports Experts is unprotected because of potential country risk. Sports Experts might consider to use debt financing in Thailand to give Thai creditors a candid interest in ensuring that Sports Experts is treated impartially by the government in Thailand. The