Series 79 practice questionhardCost of Capital in Multinational Firms
When calculating the WACC for a U.S.-based multinational with significant foreign operations, which of the following considerations is most appropriate?
- AAdjust capital costs for geographic risk and currency exposure✓ Correct answer
- BUse only U.S. risk-free rates and ignore all foreign market data.
- CExclude foreign debt from the capital structure calculation.
- DApply the U.S. tax rate to all debt regardless of jurisdiction.
Explanation
Why A — Adjust capital costs for geographic risk and currency exposure
A multinational must account for different risk and currency exposures by adjusting capital costs accordingly. Ignoring foreign data or applying U.S. rates/tax to all is inaccurate.
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