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Unformatted text preview: The Wharton School Corporate Finance (FNCE 100) J efrey F. J afe Spring, 2009 M idterm Examination I I Solution PLEASE READ THESE INSTRUCTIONS Instructions: Please read the exam instructions care¡ully. A¡ter you read the instructions please print your name and student ID and sign the exam at the bottom. 1. Please do not open the exam until you are told to do so. 2. The exam is administered under the University’s rules o¡ academic conduct; the Code o¡ Academic Integrity applies. To ensure the ¡airest possible chance ¡or everyone, the ¡ollowing procedure will be used: (a) No one may leave the room during the last 10 minutes o¡ the examination period. (b) When time expires, remain seated and silent. Pass your exam to the nearest aisle. (c) Anyone seen writing a¡ter time expires will ¡or¡eit 20 points. 3. This exam book has 12, double-sided pages, including this page. 4. The exam is closed book, but you may use a calculator and both sides o¡ an 8.5” x 11” inch sheet o¡ notes. No other notes, books, or aids are allowed. Answer all questions ¡or a possible 100 points. There are ¡ive questions. You have 2 hours. 5. Only written re-grade requests submitted with a completely unaltered exam paper can be considered. 6. I¡ you use your calculator, please provide inputs so that we may provide partial credit where appropriate. 1 | P a g e Section (circle one) 10.30AM 1.30PM 4.30PM First 3 Letters of Last Name: ______ ______ ______ Name (Print): ____________________________________________________________ Student ID Number: ____________________________________________________________ Signature: ____________________________________________________________ 1. Johnson & McDonalds Co. (JMC) has 100,000 common shares outstanding. Each share is priced at $20. JMC also has perpetual debt of $1,000,000. The interest rate on JMC's debt is 5%. If JMC were an unlevered firm, it would have expected after-tax earnings of $270,000 per year in perpetuity. The corporate tax rate is 30%....
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