Capital asset pricing theory would most likely suggest that the cost of capital is generally ____ for ____.
A) higher; MNCs
B) lower; domestic firms
C) lower; MNCs
D) none of the above

Question

Quizplus · Accepted Answer

According to the capital asset pricing theory, the cost of capital is lower for multinational corporations (MNCs) because they have lower levels of market risk due to their diverse operations and global reach. In contrast, domestic firms may have higher market risk and therefore a higher cost of capital. Option A is incorrect because higher costs of capital are usually associated with higher levels of risk, which might not be the case for MNCs. Option B is also incorrect because domestic firms may have higher market risk and a higher cost of capital. Option D is incorrect because one of the options is correct.

Capital Asset Pricing Theory Would Most Likely Suggest That the Cost