Finance Final Exam
Question 1: (1)
Ten multiple choice questions.
When a firm's investment decisions have different consequences for the value of equity and the value of debt, managers may take actions A) that benefit shareholders at the expense of debt holders. B) to decrease costs of distress. C) to reduce fixed costs. D) to increase debt values. (2) Which of the following is NOT an advantage of private debt over public debt? A) B) C) D) It does not dilute the ownership of the firm. It has to have interest and principal payments made upon it. It is liquid. It need not be registered with ASIC.
(3) The book value of equity of a firm is $100 million and the market value of equity is $200 million. The face value of debt of the firm is $50 million and the market value of debt is $60 million. What is the market value of assets of the firm? A) $150 million B)$250 million C) $260 million D) $160 million
2
(4) Coca-Cola Amatil (CCA) has a weighted average cost of capital of 9%. CCA is considering investing in a new plant that will save the company $25 million over each of the first two years, and then $10 million each year thereafter. If the investment is $100 million, what is the netpresent value (NPV) of the project? A) $37.5 million B) $36.5 million C) $39.7 million D) $34.2 million
(5) Which of the following is NOT a reason why an IPO is attractive to the managers of a private company? A) It gives access to large amounts of capital in the IPO. B) It gives their private equity investors the opportunity to diversify. C) It gives access to much larger amounts of capital through the public markets in subsequent offerings. D) It reduces the complexity of requirements regulating the company's management (6) How does the total cost of issuing shares for the first time compare to the issuance costs of other securities? A) substantially less than the costs for most other securities B) substantially less than the cost for a few other securities C) substantially larger than the
Ten multiple choice questions.
When a firm's investment decisions have different consequences for the value of equity and the value of debt, managers may take actions A) that benefit shareholders at the expense of debt holders. B) to decrease costs of distress. C) to reduce fixed costs. D) to increase debt values. (2) Which of the following is NOT an advantage of private debt over public debt? A) B) C) D) It does not dilute the ownership of the firm. It has to have interest and principal payments made upon it. It is liquid. It need not be registered with ASIC.
(3) The book value of equity of a firm is $100 million and the market value of equity is $200 million. The face value of debt of the firm is $50 million and the market value of debt is $60 million. What is the market value of assets of the firm? A) $150 million B)$250 million C) $260 million D) $160 million
2
(4) Coca-Cola Amatil (CCA) has a weighted average cost of capital of 9%. CCA is considering investing in a new plant that will save the company $25 million over each of the first two years, and then $10 million each year thereafter. If the investment is $100 million, what is the netpresent value (NPV) of the project? A) $37.5 million B) $36.5 million C) $39.7 million D) $34.2 million
(5) Which of the following is NOT a reason why an IPO is attractive to the managers of a private company? A) It gives access to large amounts of capital in the IPO. B) It gives their private equity investors the opportunity to diversify. C) It gives access to much larger amounts of capital through the public markets in subsequent offerings. D) It reduces the complexity of requirements regulating the company's management (6) How does the total cost of issuing shares for the first time compare to the issuance costs of other securities? A) substantially less than the costs for most other securities B) substantially less than the cost for a few other securities C) substantially larger than the