Corporate Finance
The Open Polytechnic of New Zealand
Trimester 1, 2012
71303 Corporate Finance Final Examination
Time allowed
Three hours, plus 10 minutes to read this paper.
Instructions
1. 2. 3. 4. Answer all questions. Read each question carefully. Start each question on a new page. Show all of your workings.
Mark allocation
Question Part A Part B 1. 2. 3. 4. 5. Cost of capital Risk and return Investment timing real option Capital structure Dividend policy 14 12 15 20 15 Total 100 Topic Multiple-choice questions Marks 24
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Useful formulae FV PV PVCF PVperp EAR YTM Yield CV Po Or; Po rs re rd ri WACC g BPre S V Or; V VB VU VL rsL (Proposition II) rsL bL = = = = = = = = = = = = = = = = = = = = = = = = = = PV(1 + r)n FV / (1 + r)n n n ⎛ 1 ⎞ Σ _ CFt ⎜1 + i⎟ ⎝ ⎠ t=1 PMT / r [1 + (rNm/m)]m – 1 [I + (M – V)/n] / [(M + 2V)/3] (D1 + P1 - P0) / P0 σ/r D1/(rs – g) S/no. of shares (D1 / P0) + g [D1 / P0(1 - F)] + g i(1 - t) rRF + bi (rM - rRF) wdrd (1 - t) + weke ROE(Retention ratio) Retained earnings / Equity fraction [(EBIT - rdD)(1 - T)] / rs D + [(EBIT - rdD)(1 - T)] / rs D+S n Σ⎡_ INT/(1 + Kd)t ⎤ + M/(1 + rd)n ⎢ ⎥ ⎣t = 1 ⎦ EBIT(1 -t) / rsU Vu + TD - PV(distress + agency costs) rRF + bu(rM - rRF) + bu(rM - rRF)(1 - T)(D / S) rsU + (rsU –rd)(1 – T)(D/S) bu[1 + (1 - T)(D / S)]
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Carrying cost = AFN Carrying cost AFN = = =
DSO(sales / day)(VCR)(WACC) (A*/S0)ΔS0 - (L*/S0)ΔS - MS1(RR) DSO(sales / day)(VCR)(WACC) (A*/SO)ΔSO - (L*/SO)ΔS - MS1(RR)
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Part A: Multiple-choice questions
Each question is worth 3 marks. (1.5 marks for correct answer, 1.5 marks for your explanation or
Trimester 1, 2012
71303 Corporate Finance Final Examination
Time allowed
Three hours, plus 10 minutes to read this paper.
Instructions
1. 2. 3. 4. Answer all questions. Read each question carefully. Start each question on a new page. Show all of your workings.
Mark allocation
Question Part A Part B 1. 2. 3. 4. 5. Cost of capital Risk and return Investment timing real option Capital structure Dividend policy 14 12 15 20 15 Total 100 Topic Multiple-choice questions Marks 24
Copyright © The Open Polytechnic of New Zealand
1
2
Copyright © The Open Polytechnic of New Zealand
Copyright © The Open Polytechnic of New Zealand
3
4
Copyright © The Open Polytechnic of New Zealand
Copyright © The Open Polytechnic of New Zealand
5
Useful formulae FV PV PVCF PVperp EAR YTM Yield CV Po Or; Po rs re rd ri WACC g BPre S V Or; V VB VU VL rsL (Proposition II) rsL bL = = = = = = = = = = = = = = = = = = = = = = = = = = PV(1 + r)n FV / (1 + r)n n n ⎛ 1 ⎞ Σ _ CFt ⎜1 + i⎟ ⎝ ⎠ t=1 PMT / r [1 + (rNm/m)]m – 1 [I + (M – V)/n] / [(M + 2V)/3] (D1 + P1 - P0) / P0 σ/r D1/(rs – g) S/no. of shares (D1 / P0) + g [D1 / P0(1 - F)] + g i(1 - t) rRF + bi (rM - rRF) wdrd (1 - t) + weke ROE(Retention ratio) Retained earnings / Equity fraction [(EBIT - rdD)(1 - T)] / rs D + [(EBIT - rdD)(1 - T)] / rs D+S n Σ⎡_ INT/(1 + Kd)t ⎤ + M/(1 + rd)n ⎢ ⎥ ⎣t = 1 ⎦ EBIT(1 -t) / rsU Vu + TD - PV(distress + agency costs) rRF + bu(rM - rRF) + bu(rM - rRF)(1 - T)(D / S) rsU + (rsU –rd)(1 – T)(D/S) bu[1 + (1 - T)(D / S)]
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Carrying cost = AFN Carrying cost AFN = = =
DSO(sales / day)(VCR)(WACC) (A*/S0)ΔS0 - (L*/S0)ΔS - MS1(RR) DSO(sales / day)(VCR)(WACC) (A*/SO)ΔSO - (L*/SO)ΔS - MS1(RR)
Copyright © The Open Polytechnic of New Zealand
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Part A: Multiple-choice questions
Each question is worth 3 marks. (1.5 marks for correct answer, 1.5 marks for your explanation or