Question 1

The beginning of the modern theory of finance was marked by:

Accepted Answer

A) the approach used by Modigliani and Miller. 
B) the approach used by John and Williams. 
C) the approach taken by Berk and DeMarzo. 
D) the approach taken by Dan Harris. 
A) the approach used by Modigliani and Miller. 
B) the approach used by John and Williams. 
C) the approach taken by Berk and DeMarzo. 
D) the approach taken by Dan Harris.

Question 2

Suppose that Taggart Transcontinental currently has no debt and has an equity cost of capital of 10%.Taggart is considering borrowing funds at a cost of 6% and using these funds to repurchase existing shares of stock.Assume perfect capital markets.If Taggart borrows until they achieved a debt-to-value ratio of 20%,then Taggart's levered cost of equity would be closest to:

Accepted Answer

A) 8.0% 
B) 9.2% 
C) 10.0% 
D) 11.0% 
A) 8.0% 
B) 9.2% 
C) 10.0% 
D) 11.0%

Question 3

Suppose you own 10% of the equity of Without.What is another portfolio you could hold that would provide you with the same exact cash flows?

Accepted Answer

The cash flows for a 10% ownership stake

Question 4

Fill in the table below showing the payments debt and equity holders of each firm will receive given each of the two possible levels of free cash flows:

Accepted Answer

The answer of Fill in the table below showing the...

Question 5

Which of the following statements is FALSE?

Accepted Answer

A) As long as investors can borrow or lend at the same interest rate as the firm,homemade leverage is a perfect substitute for the use of leverage by the firm. 
B) When investors use leverage in their own portfolios to adjust the leverage choice made by the firm,we say that they are using homemade leverage. 
C) The value of the firm is determined by the present value of the cash flows from its current and future investments. 
D) The investor can re-create the payoffs of unlevered equity by borrowing and using the proceeds to purchase the equity of the firm. 
A) As long as investors can borrow or lend at the same interest rate as the firm,homemade leverage is a perfect substitute for the use of leverage by the firm. 
B) When investors use leverage in their own portfolios to adjust the leverage choice made by the firm,we say that they are using homemade leverage. 
C) The value of the firm is determined by the present value of the cash flows from its current and future investments. 
D) The investor can re-create the payoffs of unlevered equity by borrowing and using the proceeds to purchase the equity of the firm.

Question 6

Consider the following equation:
E + D = U = A
The U in this equation represents:

Accepted Answer

A) the value of the firm's equity. 
B) the market value of the firm's assets. 
C) the value of the firm's unlevered equity. 
D) the value of the firm's debt. 
A) the value of the firm's equity. 
B) the market value of the firm's assets. 
C) the value of the firm's unlevered equity. 
D) the value of the firm's debt.

Question 7

Suppose that to raise the funds for the initial investment,the project is sold to investors as an all-equity firm.The equity holders will receive the cash flows of the project in one year.The market value of the unlevered equity for this project is closest to:

Accepted Answer

A) $94,100 
B) $90,000 
C) $86,250 
D) $98,600 
A) $94,100 
B) $90,000 
C) $86,250 
D) $98,600

Question 8

Which of the following statements is FALSE?

Accepted Answer

A) Holding cash has the opposite effect of leverage on risk and return. 
B) We use the market value of the firm's net debt when computing its WACC and unlevered beta to measure the cost of capital and market risk of the firm's business assets. 
C) Since the WACC does not change with the use of leverage,the value of the firm's free cash flow evaluated using the WACC does not change,and so the enterprise value of the firm does not depend on its financing choices. 
D) Even if the firm's capital structure is more complex,the WACC is calculated by computing the weighted average cost of only the firm's debt and equity. 
A) Holding cash has the opposite effect of leverage on risk and return. 
B) We use the market value of the firm's net debt when computing its WACC and unlevered beta to measure the cost of capital and market risk of the firm's business assets. 
C) Since the WACC does not change with the use of leverage,the value of the firm's free cash flow evaluated using the WACC does not change,and so the enterprise value of the firm does not depend on its financing choices. 
D) Even if the firm's capital structure is more complex,the WACC is calculated by computing the weighted average cost of only the firm's debt and equity.

Question 9

You are evaluating a new project and need an estimate for your project's beta.You have identified the following information about three firms with comparable projects:
  
-The unlevered beta for Blinkin is closest to:

Accepted Answer

A) 0.95 
B) 1.10 
C) 1.00 
D) 0.90 
A) 0.95 
B) 1.10 
C) 1.00 
D) 0.90

Question 10

Which of the following statements is FALSE?

Accepted Answer

A) The levered equity return equals the unlevered return,plus an extra "kick" due to leverage. 
B) By holding a portfolio of the firm's equity and its debt,we can replicate the cash flows from holding its levered equity. 
C) The cost of capital of levered equity is equal to the cost of capital of unlevered equity plus a premium that is proportional to the market value debt-equity ratio. 
D) If a firm is unlevered,all of the free cash flows generated by its assets are available to be paid out to its equity holders. 
A) The levered equity return equals the unlevered return,plus an extra "kick" due to leverage. 
B) By holding a portfolio of the firm's equity and its debt,we can replicate the cash flows from holding its levered equity. 
C) The cost of capital of levered equity is equal to the cost of capital of unlevered equity plus a premium that is proportional to the market value debt-equity ratio. 
D) If a firm is unlevered,all of the free cash flows generated by its assets are available to be paid out to its equity holders.

Question 11

After the repurchase how many shares will Luther have outstanding?

Accepted Answer

A) 0.75 billion 
B) 1.0 billion 
C) 1.1 billion 
D) 1.2 billion 
A) 0.75 billion 
B) 1.0 billion 
C) 1.1 billion 
D) 1.2 billion

Question 12

Sisyphean Bolder Movers Incorporated has no debt,a total equity capitalization of $50 billion,and a beta of 2.0.Included in Sisyphean's assets are $12 billion in cash and risk-free securities.Calculate Sisyphean's enterprise value and unlevered cost of equity considering the fact that Sisyphean's cash is risk-free.

Accepted Answer

Enterprise value = market valu

Question 13

Suppose you own 10% of the equity of With.What is another portfolio you could hold that would provide you with the same exact cash flows?

Accepted Answer

The cash flows for a 10% ownership stake

Question 14

Assume that MM's perfect capital market conditions are met and that you can borrow and lend at the same 5% rate as With.You have $5000 of your own money to invest and you plan on buying With stock.Using homemade (un)leverage you invest enough at the risk-free rate so that the payoff of your account will be the same as a $5000 investment in Without stock? The number of shares of With stock you purchased is closest to:

Accepted Answer

A) 100 
B) 425 
C) 1650 
D) 825 
A) 100 
B) 425 
C) 1650 
D) 825

Question 15

Following the borrowing of $12 million and subsequent share repurchase,the number of shares that RC will have outstanding is closest to:

Accepted Answer

A) 4.0 million 
B) 6.0 million 
C) 4.9 million 
D) 4.5 million 
A) 4.0 million 
B) 6.0 million 
C) 4.9 million 
D) 4.5 million

Question 16

Show mathematically that the stock price of Rockwood does not depend on whether they issue new stock or borrow to fund their expansion.

Accepted Answer

First,since the project is already annou

Question 17

Suppose that to raise the funds for the initial investment the firm borrows $80,000 at the risk free rate,then the value of the firm's levered equity from the project is closest to:

Accepted Answer

A) $0 
B) $10,000 
C) $6000 
D) $8600 
A) $0 
B) $10,000 
C) $6000 
D) $8600

Question 18

Suppose that to raise the funds for the initial investment the firm borrows $40,000 at the risk free rate and issues new equity to cover the remainder.In this situation,the value of the firm's levered equity from the project is closest to:

Accepted Answer

A) $0 
B) $50,000 
C) $90,000 
D) $40,000 
A) $0 
B) $50,000 
C) $90,000 
D) $40,000

Question 19

You are evaluating a new project and need an estimate for your project's beta.You have identified the following information about three firms with comparable projects:
  
-The unlevered beta for Lincoln is closest to:

Accepted Answer

A) 0.95 
B) 1.00 
C) 1.05 
D) 0.90 
A) 0.95 
B) 1.00 
C) 1.05 
D) 0.90

Question 20

At the conclusion of this transaction,the value of a share of d'Anconia Copper will be closest to:

Accepted Answer

A) $18.33 
B) $20.00 
C) $25.00 
D) $27.50 
A) $18.33 
B) $20.00 
C) $25.00 
D) $27.50

The beginning of the modern theory of finance was marked by:

Suppose you own 10% of the equity of Without.What is another portfolio you could hold that would provide you with the same exact cash flows?

Fill in the table below showing the payments debt and equity holders of each firm will receive given each of the two possible levels of free cash flows:

Which of the following statements is FALSE?

Consider the following equation: E + D = U = A The U in this equation represents:

Suppose that to raise the funds for the initial investment,the project is sold to investors as an all-equity firm.The equity holders will receive the cash flows of the project in one year.The market value of the unlevered equity for this project is closest to:

Which of the following statements is FALSE?

You are evaluating a new project and need an estimate for your project's beta.You have identified the following information about three firms with comparable projects: -The unlevered beta for Blinkin is closest to:

Which of the following statements is FALSE?

After the repurchase how many shares will Luther have outstanding?

Suppose you own 10% of the equity of With.What is another portfolio you could hold that would provide you with the same exact cash flows?

Following the borrowing of $12 million and subsequent share repurchase,the number of shares that RC will have outstanding is closest to:

Show mathematically that the stock price of Rockwood does not depend on whether they issue new stock or borrow to fund their expansion.

Suppose that to raise the funds for the initial investment the firm borrows $80,000 at the risk free rate,then the value of the firm's levered equity from the project is closest to:

Suppose that to raise the funds for the initial investment the firm borrows $40,000 at the risk free rate and issues new equity to cover the remainder.In this situation,the value of the firm's levered equity from the project is closest to:

You are evaluating a new project and need an estimate for your project's beta.You have identified the following information about three firms with comparable projects: -The unlevered beta for Lincoln is closest to:

At the conclusion of this transaction,the value of a share of d'Anconia Copper will be closest to:

The Corporation

Introduction to Financial Statement Analysis

Financial Decision Making and the Law of One Price

The Time Value of Money

Interest Rates

Valuing Bonds

Investment Decision Rules

Fundamentals of Capital Budgeting

Valuing Stocks

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behavior and Capital Market Efficiency

Debt and Taxes

Financial Distress,managerial Incentives,and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modeling: a Case Study

Filters

Exam 14: Capital Structure in a Perfect Market

The beginning of the modern theory of finance was marked by:

Suppose you own 10% of the equity of Without.What is another portfolio you could hold that would provide you with the same exact cash flows?

Fill in the table below showing the payments debt and equity holders of each firm will receive given each of the two possible levels of free cash flows:

Which of the following statements is FALSE?

Consider the following equation: E + D = U = A The U in this equation represents:

Suppose that to raise the funds for the initial investment,the project is sold to investors as an all-equity firm.The equity holders will receive the cash flows of the project in one year.The market value of the unlevered equity for this project is closest to:

Which of the following statements is FALSE?

You are evaluating a new project and need an estimate for your project's beta.You have identified the following information about three firms with comparable projects: -The unlevered beta for Blinkin is closest to:

Which of the following statements is FALSE?

After the repurchase how many shares will Luther have outstanding?

Suppose you own 10% of the equity of With.What is another portfolio you could hold that would provide you with the same exact cash flows?

Following the borrowing of $12 million and subsequent share repurchase,the number of shares that RC will have outstanding is closest to:

Show mathematically that the stock price of Rockwood does not depend on whether they issue new stock or borrow to fund their expansion.

Suppose that to raise the funds for the initial investment the firm borrows $80,000 at the risk free rate,then the value of the firm's levered equity from the project is closest to:

Suppose that to raise the funds for the initial investment the firm borrows $40,000 at the risk free rate and issues new equity to cover the remainder.In this situation,the value of the firm's levered equity from the project is closest to:

You are evaluating a new project and need an estimate for your project's beta.You have identified the following information about three firms with comparable projects: -The unlevered beta for Lincoln is closest to:

At the conclusion of this transaction,the value of a share of d'Anconia Copper will be closest to:

The Corporation

Introduction to Financial Statement Analysis

Financial Decision Making and the Law of One Price

The Time Value of Money

Interest Rates

Valuing Bonds

Investment Decision Rules

Fundamentals of Capital Budgeting

Valuing Stocks

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behavior and Capital Market Efficiency

Debt and Taxes

Financial Distress,managerial Incentives,and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modeling: a Case Study

Filters