QUESTION 1

You are trying to estimate the enterprise value of Firm X. Since this firm is private, you cannot directly estimate the firms cost of equity using its stock data. Fortunately, there is a similar firm, Firm Y, which is in the same industry with comparable operating risk characteristics. Assume that the CAPM holds. The risk-free rate is 2% and the market risk premium is 5%.

Firm Y has a debt-to-equity ratio of 3 and it plans to keep this ratio fixed. Firm Ys equity beta is 6.6 and debt beta is 0.2. What is Firm Ys unlevered equity beta?

	A.	8.6
	B.	0.3
	C.	0.1
	D.	1.8

QUESTION 2

What is Firm Xs unlevered equity beta?

	A.	1.8
	B.	8.6
	C.	0.1
	D.	0.3

QUESTION 3

Assume that Firm Xs cost of debt is 2.5%. What is Firm Xs debt beta?

	A.	1.8
	B.	0.3
	C.	0.1
	D.	8.6

QUESTION 4

Firm X has a debt-to-equity ratio of 4 and it plans to keep this ratio fixed. What is Firm Xs equity beta?

	A.	0.1
	B.	0.3
	C.	1.8
	D.	8.6

QUESTION 5

What is Firm Xs cost of equity?

	A.	10%
	B.	15%
	C.	45%
	D.	35%

QUESTION 6

If the corporate tax rate is 50%, what is Firm Xs WACC?

	A.	10%
	B.	45%
	C.	15%
	D.	35%

QUESTION 7

Suppose that you forecasted Firm Xs free cash flows for the next four years as follows:

	Year 1	Year 2	Year 3	Year 4
(1) Free cash flow	$1,100	$1,210	$1,331	$1,586
(2) Terminal value				??

You need to estimate the terminal value at year 4 based on the exit multiple approach. If Firm Xs EBIT at year 4 is expected to be $200.45 and Firm Y has an EV/EBIT multiple of 14, what is the terminal value?

	A.	$1,430.8
	B.	$2,806.3
	C.	$6,000
	D.	$7,000

QUESTION 8

What is Firm Xs enterprise value?

	A.	$1,430.8
	B.	$6,000
	C.	$2,806.3
	D.	$7,000