Final Exam Practice Problems 1. Firm ABC’s only outstanding debt is $100‚000 worth of coupon bond (market value). Its yield to maturity is 8%. Given that its tax rate is 40%‚ what is its effective cost of debt? Effective cost of debt = cost of debt * (1-tax rate) =8%*(1-40%)=4.8% 2. Firm ABC has a stock currently traded at $20. The next year’s dividend will be $0.20. The dividend growth rate is forecasted to be 6% forever. Risk-free rate is 3%‚ and market risk premium is 4%. Assume that Constant
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CGA-CANADA ADVANCED CORPORATE FINANCE [FN2] EXAMINATION June 2011 Marks Notes: 1. Questions 1 and 2 are multiple choice. For these questions‚ select the best answer for each of the unrelated items. Answer each of these items in your examination booklet by giving the number of your choice. For example‚ if the best answer for item (a) is (1)‚ write (a)(1) in your examination booklet. If more than one answer is given for an item‚ that item will not be marked. Incorrect answers will be marked as zero
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dividend. How will this proposal affect the stock price? How will it affect the value of the company? Electronic Timing‚ Inc. (ETI) needs to be careful on how it dispenses the extra cash as a dividend. Issuing the extra cash as a dividend would mean that the shareholders collectively will probably drop by the same amount because of the transfer of wealth from the company to the shareholders individually. Hence‚ the economic value of the company will also decrease. 2. Jessica believes that the company
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BGB1023/BAGB1023 Organizational Behavior Group Assignment (25%) Case 1: Managing Motivation in a Difficult Economy (15%) Learning Goals In this case‚ you’ll have an opportunity to assess a motivational program designed to re-energize a troubled company’s workforce. Acting on behalf of the company’s executive board‚ you’ll evaluate the board’s current strategy based on survey data. You’ll also advise board members about improving the effectiveness of this program based on what you’ve
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Applications of option pricing in corporate finance Option pricing is used in four major areas of corporate finance: • Real Options Suppose a company has a 1-year proprietary license to develop a software application for use in a new generation of wireless cellular telephones. Hiring programmers and marketing consultants to complete the project will cost $30 million. The good news is that if consumers love the new cell phones‚ there will be a tremendous demand for the software. The bad news
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Case study: Value line publishing According to the case‚ Lowe’s management said that the growth rate of next two years would be 18% to 19%. So I prefer to use this rate as the growth rate of the first two years. The growth rate of the first two years would be 18.5%. The growth rate from 2004 to 2006 is estimated by the number of new stores‚ sq. footage and the historical sales. The following exhibit will show this result. 1997 1998 1999 2000 2001 Number of stores 477 520 576 650 744
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the: A. B. C. D. E. treasurer. director. controller. chairman of the board. chief operations officer. 3. The process of planning and managing a firm’s long-term investments is called: A. B. C. D. E. working capital management. financial depreciation. agency cost analysis. capital budgeting. capital structure. 4. The mixture of debt and equity used by a firm to finance its operations is called: A. B. C. D. E. working capital management. financial depreciation. cost analysis. capital budgeting. capital
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+ (1/1.15)(.04)] = .0599‚ or 5.99% The total amount we need to raise to fund the new equipment will be: Amount raised cost = $50‚000‚000/(1 – .0599) Amount raised = $53‚186‚023 Since the cash flows go to perpetuity‚ we can calculate the present value using the equation for the PV of a perpetuity. The NPV is: NPV = –$53‚186‚023 + ($6‚200‚000/.1039) NPV =
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In this chapter we will study that how more than one factor which is associated with expected return‚ are evaluated on capital asset pricing model. We have described earlier that beta specifies the inclination level or slope of characteristic line and this is denoted by βj. Extended capital asset pricing model evaluates many factors other than beta‚ to calculate the expected return of a security. We can add or include some other factors to the equation of expected return of a security‚ to gain more
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Innovation A Driver for Value Creation by QMD Innovation and Value Creation Technical Committee http://www.asq-qm.org/innovation-and-value-creation What Is Innovation? In – nova – tion means …..doing things….. In - a new – way So‚ how can we define innovation? >>> Quality Management Division Innovation and Value Creation Technical Committee What Is a Definition of Innovation? Innovation is: The successful conversion of new concepts and knowledge into new products and processes
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