Final Exam Essay

1143 Words Nov 8th, 2014 5 Pages
Page 1

Question 1.1. (TCO B) Which of the following statements concerning the MM extension with growth is NOT CORRECT? (a) The tax shields should be discounted at the unlevered cost of equity.
(b) The value of a growing tax shield is greater than the value of a constant tax shield.
(c) For a given D/S, the levered cost of equity is greater than the levered cost of equity under MM's original (with tax) assumptions.
(d) For a given D/S, the WACC is greater than the WACC under MM's original (with tax) assumptions.
(e) The total value of the firm is independent of the amount of debt it uses. (Points : 20)

Question 2.2. (TCO D) Which of the following statements is most CORRECT? (a) In a private placement, securities
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(a) Its sales become less stable over time.
(b) The costs that would be incurred in the event of bankruptcy increase.
(c) Management believes that the firm's stock has become overvalued.
(d) Its degree of operating leverage increases.
(e) The corporate tax rate increases. (Points : 20)

4. (TCO G) Chapter 7 of the Bankruptcy Act is designed to do which of the following? (a) Protect shareholders against creditors.
(b) Establish the rules of reorganization for firms with projected cash flows that eventually will be sufficient to meet debt payments.
(c) Ensure that the firm is viable after emerging from bankruptcy.
(d) Allow the firm to negotiate with each creditor individually.
(e) Provide safeguards against the withdrawal of assets by the owners of the bankrupt firm and allow insolvent debtors to discharge all of their obligations and to start over unhampered by a burden of prior debt. (Points : 20)

Page 3
1. (TCO I) If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.97 shekels per dollar, then the forward rate for the Israeli shekel is selling at a _____ to the spot rate. (a) premium of 8%
(b) premium of 18%
(c) discount of 18%
(d) discount of 8%
(e) premium of 16% (Points : 20)

2. (TCO H) Which of the following statements

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