Fi516 Final Exam Study Guide
WK 8 FINAL EXAM STUDY GUIDE • The exam is comprehensive and covers Chapters 8, 14, 15, 17-23, 25, and 26; Weeks 1-7 content; and all course TCOs. 1. (TCO B) Which of the following statements concerning the MM extension with growth is NOT CORRECT? (a) The tax shields should be discounted at the unlevered cost of equity. (b) The value of a growing tax shield is greater than the value of a constant tax shield. (c) For a given D/S, the levered cost of equity is greater than the levered cost of equity under MM's original (with tax) assumptions. (d) For a given D/S, the WACC is greater than the WACC under MM's original (with tax) assumptions. (e) The total value of the firm is independent of the amount of debt it uses. (Points : 20)
2. (TCO D) Which of the following statements is most CORRECT? (a) In a private placement, securities are sold to private (individual) investors rather than to institutions. (b) Private placements occur most frequently with stocks, but bonds can also be sold in a private placement. (c) Private placements are convenient for issuers, but the convenience is offset by higher flotation costs. (d) The SEC requires that all private placements be handled by a registered investment banker. (e) Private placements can generally bring in funds faster than is the case with public offerings. (Points : 20)
3. (TCO E) Kohers Inc. is considering a leasing arrangement to finance some manufacturing tools that it needs for the next 3 years. The tools will be obsolete and worthless after 3 years. The firm has the option to buy these tools. The firm will depreciate the cost of the tools on a straight-line basis over their 3-year life. It can borrow $4,800,000, the purchase price, at interest rate of 10% and buy the tools. The loan payments would be made at the end of each year. If it decides to lease or it can make 3 equal end-of-year lease payments
2. (TCO D) Which of the following statements is most CORRECT? (a) In a private placement, securities are sold to private (individual) investors rather than to institutions. (b) Private placements occur most frequently with stocks, but bonds can also be sold in a private placement. (c) Private placements are convenient for issuers, but the convenience is offset by higher flotation costs. (d) The SEC requires that all private placements be handled by a registered investment banker. (e) Private placements can generally bring in funds faster than is the case with public offerings. (Points : 20)
3. (TCO E) Kohers Inc. is considering a leasing arrangement to finance some manufacturing tools that it needs for the next 3 years. The tools will be obsolete and worthless after 3 years. The firm has the option to buy these tools. The firm will depreciate the cost of the tools on a straight-line basis over their 3-year life. It can borrow $4,800,000, the purchase price, at interest rate of 10% and buy the tools. The loan payments would be made at the end of each year. If it decides to lease or it can make 3 equal end-of-year lease payments