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International Capital Structure

International Capital Structure. …and the Cost of Capital. The WACC. The Weighted Average Cost of Capital (WACC) is the combined cost of debt and equity funding. It is the rate at which cash flows are discounted to calculate their Net Present Value (NPV) .

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International Capital Structure

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  1. International Capital Structure …and the Cost of Capital

  2. The WACC • The Weighted Average Cost of Capital (WACC) is the combined cost of debt and equity funding. It is the rate at which cash flows are discounted to calculate their Net Present Value (NPV).

  3. It is possible that the cost of capital can be reduced using an international capital structure.

  4. Segmented or Integrated?

  5. The global costs of debt converged after the early 1980s, when inflation was brought under control.

  6. The global costs of equity converged after the early 1990s, though Japan remains the cheapest.

  7. Germany and Japan have consistently higher levels of debt financing that the UK and USA, due in large part to the relationships between banks and corporations.

  8. Global WACCs are converging; but Japanese firms (low debt and equity costs) and German firms (low debt costs) still have an advantage.

  9. Example of internationalizing and lowering the cost of capital: Novo Industri (Denmark)

  10. Example (cont.) Novo shares prices rise dramatically

  11. Other foreign firms listed on the NYSE

  12. Benefits of Cross-Border Listings

  13. Benefits (cont.)

  14. Costs of Foreign Listing

  15. Restrictions on foreign ownership: Selected examples. * Thailand: Max 49% foreign ownership.

  16. Types of Stock

  17. Example of local/foreign price differential: Nestle Foreign ownership restrictions lifted

  18. How to Determine the Financial Structure of Foreign Subsidiaries

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