Q.1: Exxon Mobil Corporation (stylized as ExxonMobil) is an American multinational oil and gas corporation headquartered in Irving, Texas, USA. The company is the world's largest publicly traded international oil and gas company. The firms corporate-wide capital structure consists of 40% debt and 60% equity. Its existing long-term corporate bonds have a coupon rate of 4% pa. The following is financial information (all are measured in USD term). [3 points] ExxonMobils existing corporate bonds are traded at the yield of 5% pa. Yield on US government bond = 3% pa. US stock market risk premium (RPHM) = 7% pa. World stock market risk premium (MSCI World Index; RPWRLD) = 8% pa. (measured in USD) Cov[REXXON, RHM] / Var[RHM] = 0.90 where REXXON is the return on ExxonMobils common shares Cov[REXXON, RWRLD] / Var[RWRLD] = 0.65 US corporate tax rate = 30% 1.1 Calculate corporate-wide WACC after-tax in 2 cases; 1) if shareholders only diversify their portfolios within the US financial markets and 2) if shareholders diversify their portfolios across international financial markets. What could be a potential reason why WACC in the second case is lower than the first? [1.5 point] ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________

1.2 ExxonMobil is considering an investment project in Thailand. A listed firm in Thailand has been identified as a proxy for the project. The equity betas of the proxy firm measured against US stock market and Thailand stock market are 0.75 and 0.85, respectively. The yield on Thai government bond is currently at 4% pa. Calculate the cost of equity (kE) for the foreign project assuming shareholders are able to diversify within US financial markets. Is this cost of equity denominated in USD or THB? [1.5 point] ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________

Q.2: A foreign investment project is often considered as being riskier than a comparable project in the home country. As a corporate manager, explain how would you incorporate various types of project risks into the project evaluation process (i.e., how to reflect the risk into the projects NPV)? Explain [2 points] ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________