Fi516 Advanced Finance

Study take a crap to the woods for Final Exam 1. (TCO B) Which of the pursuit statements concerning the MM extension with growth is non sic? (a) The evaluate shields should be discounted at the unlevered equal of even off. (b) The observe of a growing task shield is great than the value of a constant levy shield. (c) For a precondition D/S, the levered toll of equity is greater than the levered cost of equity under MMs perk upd (with tax) assumptions. (d) For a given D/S, the WACC is greater than the WACC under MMs original (with tax) assumptions. e) The total value of the unassailable is independent of the amount of debt it wasting diseases. (Points 20) 2. (TCO D) Which of the fol griming statements is well-nigh elucidate? (a) In a hidden placement, securities are sold to private (individual) investors rather than to institutions. (b) Private placements occur most frequently with stocks, but bonds evict excessively be sold in a private placement. (c) Privat e placements are well-off for issuers, but the convenience is offset by higher flotation cost. (d) The SEC requires that completely private placements be handled by a registered investment banker. e) Private placements can in the main bring in funds windy than is the case with public offerings. (Points 20) 3. (TCO E) Dakota Trucking bon ton (DTC) is evaluating a potential lease for a transport with a 4-year life that costs $40,000 and falls into the MACRS 3-year class. If the dissolute borrows and buys the truck, the loan respect would be 10%, and the loan would be amortized over the trucks 4-year life. The loan payments would be make at the end of each year. The truck de part be used for 4 years, at the end of which time it volition be sold at an estimated relaxation value of $10,000.If DTC buys the truck, its after tax coin flows would be the following (Year 1) 6,339 (Year 2) -4,764 (Year 3)-9,943 (Year 4) -5,640 all occurring at the end of respective years. The lease terms, birdsong for a $10,000 lease payment (4 payments total) at the beginning of each year. DTCs tax come in is 40%. Should the firm lease or buy? (a) $849 (b) $896 (c) $945 (d) $997 (e) $1,047 (Points 20) 4. (TCO I) Suppose 90-day investments in Britain charter a 6% annualized return and a 1. 5% every quarter (90-day) return. In the U. S. 90-day investments of mistakable risk hit a 4% annualized return and a 1% quarterly (90-day) return. In the 90-day forward market, 1 British pommel equals $1. 65. If interest valuate space-reflection symmetry holds, what is the spot turn rate? (a) 1 pound = $1. 8000 (b) 1 pound = $1. 6582 (c) 1 pound = $1. 0000 (d) 1 pound = $0. 8500 (e) 1 pound = $0. 6031 (Points 20) 1. (TCO C) D. Paul Inc. forecasts a cap letter budget of $725,000. The CFO wants to maintain a target capital structure of 45% debt and 55% equity, and it also wants to pay dividends of $500,000.If the guild follows the residual dividend policy, how much income must it earn, and what will its dividend payout ratio be? Net Income Payout (a) $898,750 55. 63% (b) $943,688 58. 41% (c) $990,872 61. 43% (d) $1,040,415 64. 40% (e) $1,092,436 67. 62% (Points 20) 2. (TCO F) Warren Corporations stock sells for $42 per share. The conjunction wants to sell some 20-year, annual interest, $1,000 par value bonds. Each bond would remove 75 warrants attached to it, each exercisable into angiotensin-converting enzyme share of stock at an work up set of $47.The firms straight bonds yield 10%. Each warrant is expected to have a market value of $2. 00 given that the stock sells for $42. What coupon interest rate must the familiarity set on the bonds in order to sell the bonds-with-warrants at par? (a) 7. 83% (b) 8. 24% (c) 8. 65% (d) 9. 08% (e) 9. 54% (Points 20) 3. (TCO B) Which of the following statements is CORRECT, holding other(a) things constant? (a) Firms whose assets are relatively fluidity tend to have relatively low failure costs, hence they tend to use relatively little debt. b) An append in the personal tax rate is believably to increase the debt ratio of the average corporation. (c) If changes in the bankruptcy code make bankruptcy less costly to corporations, then this would in all probability drop the debt ratio of the average corporation. (d) An increase in the companys degree of operating supplement is likely to encourage a company to use more debt in its capital structure. (e) An increase in the corporate tax rate is likely to encourage a company to use more debt in its capital structure. (Points 20) 4. TCO G) Chapter 7 of the Bankruptcy defend is designed to do which of the following? (a) protect shareholders against creditors. (b) Establish the rules of reorganization for firms with projected immediate payment flows that eventually will be satisfactory to meet debt payments. (c) Ensure that the firm is executable after emerging from bankruptcy. (d) Allow the firm to negotiate with each creditor individually . (e) Provide safeguards against the backdown of assets by the owners of the bankrupt firm and supply insolvent debtors to discharge all of their obligations and to let over unhampered by a burden of prior debt. . (TCO I) Suppose champion British pound can grease ones palms 1. 82 U. S. bucks today in the remote exchange market, and notes forecasters predict that the U. S. dollar will depreciate by 12. 0% against the pound over the next 30 days. How many dollars will a pound buy in 30 days? (a) 1. 12 (b) 1. 63 (c) 1. 82 (d) 2. 04 (e) 3. 64 (Points 20) 2. (TCO H) Which of the following statements about valuing a firm using the APV nuzzle is most CORRECT? (a) The value of operations is reason by discounting the horizon value, the tax shields, and the acquit funds flows at the cost of equity. b) The value of equity is calculated by discounting the horizon value, the tax shields, and the free funds flows at the cost of equity. (c) The value of operations is calculated by di scounting the horizon value, the tax shields, and the free cash flows in advance the horizon date at the unlevered cost of equity. (d) The value of equity is calculated by discounting the horizon value and the free cash flows at the cost of equity. (e) The APV approach stands for the accounting pre-valuation approach. (Points 20) 3. (TCO A) Which of the following statements is CORRECT? a) mould picks give investors the right to buy a stock at a original strike price before a specified date. (b) Call options give investors the right to sell a stock at a certain strike price before a specified date. (c) Options typically sell for less than their exercise value. (d) LEAPS are very short-term options that were created relatively recently and now trade in the market. (e) An option holder is not entitled to receive dividends unless he or she exercises their option before the stock goes ex dividend. (Points 20) 4. (TCO F) A swop is a method used to reduce financial risk.Which of the following statements about swaps, if any, is NOT CORRECT? (a) A swap involves the exchange of cash payment obligations. (b) The earliest swaps were currency swaps, in which companies traded debt denominated in different currencies, range dollars and pounds. (c) Swaps are very often logical by a financial intermediary, who whitethorn or may not take the position of one of the counterparties. (d) A hassle with swaps is that no standardized contracts exist, which has prevented the development of a secondary market. (e) A company can swap fixed interest payments for be adrift interest payments. (Points 20)