AFF310_MT1_Fall 2019_Solution.pdf - AFF 310 Principles of...

AFF 310 Principles of Finance II
School of Accounting and Finance
Ryerson University
Mid-Term Exam 1 – Solution
October 4, 2019
Name: __________________________ Student ID: _____________________________
Section #: _______________________ Professor: ______________________________
Time allowed: 2 hours
Aids allowed: Closed book except for an 8’1/2” by 11’ note sheet and Excel
Please answer all the multiple-choice questions on the scan sheet. Please answer all non-
multiple-choice questions in the space provided.
The exam is out of 60. All multiple-choice problems are worth 2 marks each.
Part I. Multiple-Choice Problems __________ (20)
Part II. Quantitative Problems
Question 1 __________ (10)
Question 2 __________ (14)
Question 3 __________ (9)
Question 4 __________ (7)
Total __________ (60)

Part I. Multiple Choice Problems
1. Which of the following uses the cost of capital in its computation?
I) The NPV calculation
II) The valuation of the firm
2. Which of the following is a factor that affects the WACC, but is not in control of the firm?
I) The firm’s i nvestment policy
II) The firm’s c apital structure policy
3. Which of the following may cause a divisional cost of capital of a firm to be different from
the overall WACC of the firm?
I) The division’s investments are much riskier than the investments made by the rest of firm
II) The division uses much more debt to finance its investments than the rest of the firm
does.
.
4. Which of the following type of capital used by the firm receives favorable tax treatment?
A. Common stock
B. Preferred stock
C. Long-term debt
D. Accounts payable
5. Which of the following is the most appropriate discount rate to use for valuing of a firm?
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