Changes in Foreign Exchange Rates Can Affect a Firm in All

question 31

Multiple Choice

Changes in foreign exchange rates can affect a firm in all of the following ways except:

• A) The prices a firm pays to acquire raw materials from suppliers abroad.
• B) The amount of cash a firm receives when it collects an account receivable, a loan
• Receivable, or another receivable denominated in a currency other than its own.
• C) The value of domestic liabilities with fixed interest rates.
• D) The prices a firm charges for products sold to customers abroad.

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Definitions:

Required Rate of Return

The required rate of return is the minimum annual percentage earned by an investment that will entice individuals or companies to put money into a particular security or project.

Preferred Stock

A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock, usually with fixed dividends.

After-Tax Cost of Debt

The interest expense on debt adjusted for taxes, showing the actual cost of debt financing after considering the tax shield.

WACC

Weighted Average Cost of Capital; a calculation of a firm's cost of capital in which each category of capital is proportionately weighted.