Exam 081775RR Capital Management.pdf

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Student ID: 22097667 Exam: 081775RR - Capital Management When you have completed your exam and reviewed your answers, click Submit Exam . Answers will not be recorded until you hit Submit Exam . If you need to exit before completing the exam, click Cancel Exam . Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a page break, so be sure that you have seen the entire question and all the answers before choosing an answer. 1. In Baumol's model, what's the assumed starting level for cash? A. Compensating balance B. Replenishment C. Safety stock D. Net present value 2. Suppose that shares in Tasty Bites Pizza, Inc., are trading for $46 per share, with 6 million shares outstanding. If the firm also has 12,000 bonds outstanding and they're selling at 97 percent of par, what are the firm's current capital structure weights? 3. Up & Down Industries doesn't have any taxes to pay and has $348 million in assets, currently financed only with equity. The equity is worth $11 per share with 8 million shares outstanding, and book value of equity is equal to market value of equity. Assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as follows: l State: Pessimistic; Probability = 45 percent; Expected EBIT in state = $15 million l State: Optimistic; Probability = 55 percent; Expected EBIT in state = $19 million The company is considering switching to a 40 percent debt capital structure and has determined that it would have to pay a 10-percent yield on perpetual debt in either event. What would the level of expected
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