EF 4313- Corporate Finance I - Problem Set #1
Due by Tuesday, 15 October 2012
1. [10 points] Sydney Industries, Inc., is considering a new project that costs $30 million. The project will generate after-tax (year-end) cash flows of $8 million for five years. The firm has a debt-to-equity ratio of 0.25. The cost of equity is 12 percent and the cost of debt is 7 percent. The corporate tax rate is 40 percent. It appears that the project has the same risk of the overall firm. Should Sydney undertake the project?
2. [10 points] The returns for the past five years on Douglas stock and the New York Stock Exchange Composite Index (NYSE) are listed below.
(a) What is the average return on Douglas stock and on the market?
(b) Compute the estimated beta of Douglas stock.
3. [10 points] We want to determine cost of equity for Firm A. We know that Firm A’s target debt-to-equity ratio is 1.50. We also know that there is a comparable firm which has exactly same lines of business and therefore is expected to have the same level of business risk as Frim A. The equity beta of the comparable firm is known to be 1.80. The market value of equity and the market value of debt of the comparable firm are $400 million and $200 million, respectively. The corporate tax rate is 20%. Based on the information given, answer following questions.
(a) What would be your estimate of equity beta for Frim A?
(b) If you find that equity beta is different between Frim A and its comparable firm in (a), how would you
explain the difference? If you expect no difference explain why they are not different.
4. [10 points] Cavalier Corp's articles of incorporation authorize the firm to issue 500,000 shares of $5 par value common stock, of which 325,000 shares have been issued. Those shares were sold at an average 12% over par. In the quarter that ended last week, Cavalier earned $260,000 net income; 4 percent of that income was paid as a dividend. Prior to the close of the books, Cavalier has $3,545,000 in retained earnings. The company owns no treasury stock.
(a) Calculate the book value of equity.
(b) Now the company sells 25,000 newly issued shares at a price of $4 per share. Par value of the shares
is $5. What will be the book value of equity after the issue?
5. [10 points] The shareholders of the Spartan Corp. are electing seven individuals to serve as directors on their board. There are 2 million shares outstanding. How many shares would you need to hold to be certain that you can elect at least one director assuming that
(a) Spartan has straight voting
(b) Spartan has cumulative voting
6. [10 points] Consider two firms A and B that are identical in all respects except capital structure. Firm
A has $160 million in equity outstanding and $40 million in bonds outstanding. Firm
B has $200 million in equity outstanding and $0 million in bonds outstanding.
(a) Suppose an investor has an $8 million investment in the stock of firm A. What alternative $8 million
investment that includes firm B’s stock will give the investor the same cash flow payoff in future years as his current investment in firm A’s stock? (Hint: I am looking fo r the amount of cash you would invest in firm B's stock and the amount of cash you would either invest in other securities or borrow from other sources so that $8 million comes out of your pocket today and you get the exact same cash payoff down the road as the current $8 million investment in firm A’s stock.)
(b) Suppose an investor has a $16 million investment in the stock of firm B. What alternative $16 million
investment that includes firm A’s stock will give the investor the same cash flow payoff in f uture years as his current investment in firm B’s stock? (Hint: I am looking for the amount of cash you would invest in firm A's stock and the amount of cash you would either invest in other securities or borrow from other sources so that $16 million comes out of your pocket today and you get the exact same cash payoff down the road as the current $16 million investment in firm B’s stock.)
7. [10 points] New World Corp. and Old World Corp. are identical in all respects except capital structure. New World's bonds have a market value of $200 million while Old World's bonds have a market value of $500 million. These firms operate in a perfect world where markets are perfectly efficient and there are no taxes or financial distress/bankruptcy costs. Both firms have 10 million shares outstanding. If the stock price for New World is $120, what do you predict for the stock price of Old World?
8. [10 points] Buckeye Corp. is currently an all-equity firm with a market value of equity of $100 million. The current expected return on Buckeye's equity is 25%. Buckeye operates in a world with no taxes. Buckeye is planning on issuing $10 million in debt with an interest rate of 10% and using the cash to repurchase $10 million in shares.
(a) After Buckeye repurchases the stock, what will be the expected return on the firm's stock?
(b) After Buckeye repurchases the stock, what will be the firm's weighted average cost of capital?
9. [20 points] A firm currently has no debt. The firm has 10 million shares outstanding and those shares currently have a market price of $30 per share. The firm is contemplating selling $50 million in bonds and using the proceeds to repurchase shares of stock. If they undertake this action, the firm intends to keep this level of debt financing for the foreseeable future.
Assume that the corporate tax rate is 40%. Given this data, if the firm announces that they will sell the bonds and repurchase equity what:
(a) do you expect the stock price to be immediately after the announcement?
(b) will be the firm’s total market value of equity immediately after the announcement?
(c) do you expect the stock price to be after the bond issue/repurchase are completed?
(d) will be the firm’s total market value of equity after the bond issue/repurchase are completed?
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上财经济学真题 Document serial number【NL89WT-NY98YT-NC8CB-NNUUT-NUT108】
一、判断题(每小题1分) 1、给定消费者偏好,如果两种商品之间满足边际替代率递减,那么这两种商品的边际效用一定递减。 2、在垄断市场上,一种商品需求的价格弹性越大,垄断定价中成本加成系数减少。 3、如果一种商品的收入效应为正,那么当价格下降时,消费者剩余的变化(△CS)、补偿变差(CV)和等价变差(EV)大小满足:∣EV∣>∣△CS∣>∣CV ∣。 4、如果李三的偏好可以用函数Max{x,y}表示,那么他的偏好是凸的。 5、如果消费者偏好可以用C-D效用函数表示,那么,消费者在一种商品上的支出占总支出的比例不随价格或收入改变而变化 6、对于一个公平的赌博,即期望的净收益为零,此时判断一个人是否是风险爱好,取决于他是否会接受公平的赌博。 7、在博弈情形中,如果扩大一个参与者的策略集,那么至少该参与者的福利不会下降。 8、福利经济学第二定理告诉我们,只要所有交易者具有理性、严格递增偏好,那么每一个帕累托有效的配置都是某一竞争均衡的结果。 9、在外部性问题中,如果每个消费者具有拟线性偏好,那么帕累托有效配置独立于产权分配。 10.、道德风险问题是由于交易一方不能观察另一方类型或质量导致的。 11、新古典经济增长模型与内生经济增长模型的主要区别是,前者没有考虑技术进步,,后者包含了技术进步。 12、货币中性主要是指货币供给变动只影响名义变量,而不影响实际变量。 13、对汇率固定、资本只有流动的小国开放经济,财政政策比货币政策更有效。 14、货币需求交易理论注重货币收益,货币需求资产组合理论注重货币成本。 15.、与政策相关的“时间不一致性”是指当政者宣布政策的目的在于麻痹公众,以达到自己的党派利益。 16、在计算GDP时,企业购买的新厂房及办公用房应当计入投资,而个人购买的新住房应计入消费。 17、在物价为黏性的时间范围内,古典二分法不再成立,并且经济会背离古典模型所预言的均衡。 18、根据货币需求的资产组合理论,股票的实际预期收益不影响货币需求。 19、正如凯恩斯一样,许多经济学家相信在经济衰退时,投资相对无弹性,因此,利益的降低对投资和国民收入几乎没有什么影响。 20、资本与劳动在生产上是可以相互替换的,这是新古典增长模型的假设条件。 二、单项选择题(每小题1分) 21、在两商品经济中,王四觉得商品1越来越好,商品2越多越糟,那么__. A、无差异曲线一定是凸向原点的; B、无差异曲线一定向右上方倾斜; C、无差异曲线可能是呈椭圆形; D、以上都不是 22、在下列效用函数中,哪一个具有风险规避(risk-aversion)倾向,这里x 代表财富水平。 A、u(x)=100+3x B、u(x)=lnx C、u(x)=x2 D、以上都不是