4-part question:

A. For most firms, the cost of capital decreases to a low point as the firm ________ debt financing. At some point beyond this optimal level, the cost of capital increases as the amount of debt ________.

B. In theory, the MNE should support ________ debt ratios than a purely domestic firm because their cash flows are ________.

C. Tropicas Inc., a U.S firm, has just borrowed euro 1,000,000 to make improvements to an Italian fruit plantation and processing plant. If the interest rate is 5.50% per year and the Euro depreciates against the dollar from $1.40/ at the time the loan was made to $1.35/ at the end of the first year, how much interest will Tropicas pay at the end of the first year (rounded)?

D. Portfolio diversification of domestic firms reduces risk because cash flows are not perfectly ______.