BFN$203$ CORPORATE FINANCE: IN$-$CLASS PRACTICE EXAM

There are $100$ outstanding shares, selling at $$25$ each. Additional information is available:

Expected capital gain yield $3\mathrm{.}00\%$

BETA $0\mathrm{.}80$

RISK$-$free rate $1\mathrm{.}50\%$

Market risk premium $=($Rm$-$Rf$)6\mathrm{.}00\%$

Bankruptcy costs $(\%$ of assets$)10\mathrm{.}00\%$

Unlevered cost of equity $5\mathrm{.}2722\%$

Corporate tax rate $34\mathrm{.}00\%$

Cash $$100\mathrm{.}00$

Inventory $$500\mathrm{.}00$

A$/$R $$400\mathrm{.}00$

Current assets $$1,000\mathrm{.}00$

GFA $$3,000\mathrm{.}00$

Accumulated depreciation $-$$$1,000\mathrm{.}00$

NFA $$2,000\mathrm{.}00$

Other assets $$500\mathrm{.}00$

Total assets $$3,500\mathrm{.}00$

A$/$P $$300\mathrm{.}00$

N$/$P $$400\mathrm{.}00$

Current liabilities $$700\mathrm{.}00$

LTD $$1,500\mathrm{.}00$

Total liabilities $$2,200\mathrm{.}00$

Outstanding shares $$1,120\mathrm{.}14$

Sales $$5,000\mathrm{.}00$

Costs $-$$$3,500\mathrm{.}00$

Depreciation $-$$$1,000\mathrm{.}00$

EBIT $$500\mathrm{.}00$

Interest $-$$$80\mathrm{.}75$

EBT $$419\mathrm{.}25$

Tax on profits $-$$$142\mathrm{.}55$

NI $$276\mathrm{.}71$

Dividend $$96\mathrm{.}85$

Addition to RE $$179\mathrm{.}86$

Accumulated RE $$179\mathrm{.}86$

Equity $$1,300\mathrm{.}00$

Total L&E $$3,500\mathrm{.}00$

Circle the best answer to the following questions:

$1.$ The before$-$tax cost of debt is:

a$.1\mathrm{.}98\%$

b$.2\mathrm{.}42\%$

c$.3\mathrm{.}67\%$

d$.4\mathrm{.}25\%$

e$.$ None of the above

$9.$ DGM$,$ market value weights wacc is:

a$.3\mathrm{.}86\%$

b$.4\mathrm{.}08\%$

c$.4\mathrm{.}49\%$

d$.4\mathrm{.}79\%$

e$.$ None of the above

$2.$ The after$-$tax cost of debt is:

a$.1\mathrm{.}98\%$

b$.2\mathrm{.}42\%$

c$.3\mathrm{.}67\%$

d$.4\mathrm{.}25\%$

e$.$ None of the above

$10.$ CAPM, market value weights wacc is:

a$.3\mathrm{.}86\%$

b$.4\mathrm{.}08\%$

c$.4\mathrm{.}49\%$

d$.4\mathrm{.}79\%$

e$.$ None of the above

$3.$ The cost of equity is $($use DGM$)$:

a$.5\mathrm{.}10\%$

b$.5\mathrm{.}27\%$

c$.6\mathrm{.}30\%$

d$.6\mathrm{.}87\%$

e$.$ None of the above

$11.$ Debt tax shield is:

a$.$ $$2,200$

b$.$ $$80\mathrm{.}75$

c$.$ $$748$

d$.$ $$923$

e$.$ None of the above

$4.$ The cost of equity is $($use CAPM$)$:

a$.5\mathrm{.}10\%$

b$.5\mathrm{.}27\%$

c$.6\mathrm{.}30\%$

d$.6\mathrm{.}87\%$

e$.$ None of the above

$12.$ The value of the all$-$equity firm is:

a$.$ $$8\mathrm{.}456\mathrm{.}27$

b$.$ $$14,523\mathrm{.}61$

c$.$ $$14,873\mathrm{.}61$

d$.$ $$14,921\mathrm{.}61$

e$.$ None of the above

$5.$ Total book value of firm is:

a$.$ $$2,500$

b $$3,500$

c$.$ $$3,679\mathrm{.}86$

d$.$ $$4,700$

e$.$ None of the above

$13.$ The value of the levered firm is:

a$.$ $$8\mathrm{.}456\mathrm{.}27$

b$.$ $$14,523\mathrm{.}61$

c$.$ $$14,873\mathrm{.}61$

d$.$ $$14,921\mathrm{.}61$

e$.$ None of the above

$6.$ Total market value of firm is:

a$.$ $$2,500$

b$.$ $$3,500$

c$.$ $$3,679\mathrm{.}86$

d$.$ $$4,700$

e$.$ None of the above

$14.$ If leverage increased to $80\%,$ as measured by TL over TA$,$ total firm value would:

a$.$ Increase by $$567,89$

b$.$ Decrease by $$342\mathrm{.}77$

c$.$ Remain unchanged

d$.$ Cannot tell without knowing bankruptcy costs

e$.$ None of the above

$7.$ DGM$,$ book value weights wacc is:

a$.3\mathrm{.}86\%$

b$.4\mathrm{.}08\%$

c$.4\mathrm{.}49\%$

d$.4\mathrm{.}79\%$

e$.$ None of the above

$15.$ Assuming there is no change in sales next year and any surplus is kept in cash and

any deficit is covered by borrowing, do you expect next year$$s wacc to change?

a$.$ No$,$ nothing changes

b$.$ Yes, it does

c$.$ I don$$t know

d$.$ I won$$t tell

e$.$ None of the above

$8.$ CAPM, book value weights wacc is:

a$.3\mathrm{.}86\%$

b$.4\mathrm{.}08\%$

c$.4\mathrm{.}49\%$

d$.4\mathrm{.}79\%$

e$.$ None of the above