Even Though a Foreign Stock Appears to Be Undervalued in Its

question 12

True/False

Even though a foreign stock appears to be undervalued in its own country, the stock may not generate a reasonable return for a U.S. investor if the currency of that country depreciates against the U.S. dollar.

---

Definitions:

Capital Gains Yield

The price appreciation component of the total return on an investment, excluding any dividends or interest.

Debt-Equity Ratio

A ratio representing the degree of financial leverage of a company, calculated through the division of its total liabilities by shareholders' equity.

After-Tax Cost of Debt

The total expense of borrowing for a business, after subtracting the tax savings gained from deducting interest expenses.

Weighted Average Cost of Capital (WACC)

A calculation of a firm's cost of capital, weighting each category of capital (equity, debt, etc.) proportionally.