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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T he Sisyphean Corporation The Sisyphean Corporation is considering investing in a new cane manufacturing machine that has an estimated life of three years. The cost of the machine is $30‚000 and the machine will be depreciated straight line over its three-year life to a residual value of $0. The cane manufacturing machine will result in sales of 2‚000 canes in year 1. Sales are estimated to grow by 10% per year each year through year three. The price per cane that Sisyphean will charge
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Corporate finance P. Frantz‚ R. Payne‚ J. Favilukis FN3092‚ 2790092 2011 Undergraduate study in Economics‚ Management‚ Finance and the Social Sciences This subject guide is for a Level 3 course (also known as a ‘300 course’) offered as part of the University of London International Programmes in Economics‚ Management‚ Finance and the Social Sciences. This is equivalent to Level 6 within the Framework for Higher Education Qualifications in England‚ Wales and Northern Ireland (FHEQ). For more
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Answers Chapter 1 Introduction Solutions to questions 1. Finance involves three main areas—corporate finance‚ financial institutions and markets‚ and investments—that are closely related and complementary. For example‚ in corporate finance the central issues are how to acquire and employ or invest funds. To acquire funds a financial manager must deal with financial institutions‚ so some knowledge of the operations of financial institutions and markets is essential. Similarly‚ corporate finance involves
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Corporate Finance Exam with Answers Posted on May 10‚ 2012 by Sam Corporate Finance‚ Chapters 8‚ 9 & 10. Exam Questions: 1. A project’s opportunity cost of capital is: A. The forgone return from investing in the project. 2. Which of the following statements is correct for a project with a positive NPV? A. The IRR must be greater than 1. 3. What is the NPV of a project that costs $100‚000 and returns $50‚000 annually for 3 years if the opportunity cost of capital is 14%? C. $16‚085
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CORPORATE FINANCE The word Corporate Finance can be defined in terms that may vary considerably across the world. Corporate Finance is one of the three areas of the discipline of finance and can be defined broadly as a field of finance dealing with acquisition and allocation of a corporation ’s funds or resources‚ with the goal of maximizing shareholder wealth i.e. stock value. This division of a company is basically concerned with the financial operation of the company from company’s point of view
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The rise of the West from the fifteenth and eighteenth centuries involved distant explorations and conquests resulting in a heightening and redefining of relationships among world societies. During the classical era‚ larger regional economies and culture zones had developed‚ as in the Chinese Middle Kingdom and the Mediterranean basin‚ but international exchanges were not of fundamental importance to the societies involved. During the postclassical period‚ contacts increased and were more significant
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Which of the following conditions would conflict theorists suggest as being the result of a declining standard of living in a given society? *A ) political instability B ) mass migration C ) citizen apathy D ) economic alienation The diffusion of responsibility can best be defined by which of the following? A ) The more bystanders there are‚ the more likely people are to help. *B ) The more bystanders there are‚ the less likely people
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Subject: Corporate Finance (3 credits) Reference book: 1. Essentials of managerial Finance: Harcourt College 2000 2. Fundamentals of financial management: Mc Graw Hill 2007 Chapter 01: An overview of Finance What is finance? Finance is concerned with decisions about money (cash flows) Finance decisions deal with how money is raised and used Everything else being equal: * More vale is preferred to less * The sooner cash is received the more value it has * Less risky
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What is Corporate Finance? It�s all corporate finance. My unbiased view of the world Every decision made in a business has financial implications‚ and any decision that involves the use of money is a corporate financial decision. Defined broadly‚ everything that a business does fits under the rubric of corporate finance. It is‚ in fact‚ unfortunate that we even call the subject corporate finance‚ because it suggests to many observers a focus on how large corporations
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