corporate finance midterm
ADM 3350N, Winter 2013
Prof. Yuri Khoroshilov
Midterm exam
IMPORTANT:
Please, show your work for all questions (excluding multiple-choice questions)
Please, keep at least 4 decimal points while performing your calculations. Marks will be deducted for rough rounding!!!
The exam consists of two parts and one bonus question and is counted out of 40 points. In case your total mark (including the bonus question) exceeds 40 points, you will be awarded only 40 points for this exam and no extra credits will be given for the remaining points.
Note s to Grader:
Please, do not double-punish students for the mistake made in earlier parts of the question: do not deduct marks if you are able to determined that later part of the question was done correctly with the only source of incorrect answer is the mistake in earlier part of the question carried out forward. If partial credits are not specify in the grading key - developed your own rule for allocating partial credits.
Part 1: Multiple-choice questions (10 questions, 1 points each, 10 points total)
1) According to M&M Theorem in the absence of corporate taxes, an increase in leverage (i.e., an increase in D/E ratio) will lead to
a) Higher cost of equity
b) Low cost of equity
c) No change in cost of equity
d) The information provided is not sufficient to chose any of the above questions
Ans: A
2) According to M&M Theorem in the absence of corporate taxes, an increase in leverage (i.e., an increase in D/E ratio) will lead to
a) Higher WACC
b) Low WACC
c) No change in WACC
d) The information provided is not sufficient to chose any of the above questions
Ans: C
3) According to M&M Theorem in the presence of corporate taxes an increase in leverage (i.e., an increase in D/E ratio) will lead to
a) Higher WACC
b) Low WACC
c) No change in WACC
d) The information provided is not sufficient to chose any of the above questions
Ans: B
4) According to M&M Theorem in the absence
Prof. Yuri Khoroshilov
Midterm exam
IMPORTANT:
Please, show your work for all questions (excluding multiple-choice questions)
Please, keep at least 4 decimal points while performing your calculations. Marks will be deducted for rough rounding!!!
The exam consists of two parts and one bonus question and is counted out of 40 points. In case your total mark (including the bonus question) exceeds 40 points, you will be awarded only 40 points for this exam and no extra credits will be given for the remaining points.
Note s to Grader:
Please, do not double-punish students for the mistake made in earlier parts of the question: do not deduct marks if you are able to determined that later part of the question was done correctly with the only source of incorrect answer is the mistake in earlier part of the question carried out forward. If partial credits are not specify in the grading key - developed your own rule for allocating partial credits.
Part 1: Multiple-choice questions (10 questions, 1 points each, 10 points total)
1) According to M&M Theorem in the absence of corporate taxes, an increase in leverage (i.e., an increase in D/E ratio) will lead to
a) Higher cost of equity
b) Low cost of equity
c) No change in cost of equity
d) The information provided is not sufficient to chose any of the above questions
Ans: A
2) According to M&M Theorem in the absence of corporate taxes, an increase in leverage (i.e., an increase in D/E ratio) will lead to
a) Higher WACC
b) Low WACC
c) No change in WACC
d) The information provided is not sufficient to chose any of the above questions
Ans: C
3) According to M&M Theorem in the presence of corporate taxes an increase in leverage (i.e., an increase in D/E ratio) will lead to
a) Higher WACC
b) Low WACC
c) No change in WACC
d) The information provided is not sufficient to chose any of the above questions
Ans: B
4) According to M&M Theorem in the absence