F07 - 1FINANCE 401 RYERSON UNIVERSITY Final Exam December...

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1 FINANCE 401 RYERSON UNIVERSITY Final Exam – December 11, 2007 - SOLUTION Name:__________________________________ Student #:_______________________________ Professor:______________________________ _ - Time allowed: 3 hours - Aids allowed: None except for an 8’1/2” by 11’ double sided cheat sheet and a calculator - The exam is out of marks. - There are 40 multiple choice questions. Each multiple choice question is worth 1 mark. - The remaining non-multiple choice questions are worth 30 marks. - Answer all multiple choice questions on the marksense sheet. - Answer all non-multiple choice questions in the space provided. - Please put your name, student number, and professor’s name on the front of this exam questionnaire AND at the top of the non-multiple choice section. - Print or write VERY NEATLY. If I can’t read your writing, your answers won’t get marked. 1. If the number of shares for an all equity firm = 200,000, the number of shares if the firm is half debt and half equity is 100,000, and the interest cost for the firm if it is half debt and half equity is $1,000,000, then what is the firm’s breakeven EBIT? Assume that there are no taxes. a) $1,000,000 b) $2,000,000 c) $3,000,000 d) $4,000,000 e) None of the above Let EBIT = X (X / 200,000) = (X - $1,000,000) / 100,000 Solving for X yields $2,000,000 2. If the firm in the prior question does not achieve its breakeven EBIT (i.e., earns less than its breakeven EBIT), which of the following statements is most true? a) The firm will have a higher EPS if it has debt in its capital structure in comparison to being an all equity firm b) The firm will have a higher EPS if is an all equity firm in comparison to having debt in its capital structure c) The firm will have the same EPS regardless of whether it has debt in its capital structure or not d) The firm will have a negative EPS 3. If a firm’s EPS is $12/share, there are 12,000,000 shares, no interest costs, and a 50% tax rate, what is the firm’s EBIT? a) $36,000,000 b) $72,000,000 c) $144,000,000 d) $288,000,000
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e) None of the above 4. Please fill in the blank. The cum-dividend date is __________? a) Always before the date of record b) The first business day after the ex-dividend date c) Always before the declaration date d) Sometimes before the declaration date e) Always between the ex-dividend date and the date of record Please use the following information to answer the next two questions. Huckabeet Inc.’s target D/E ratio is .5, its Net Earnings (NE) is $100,000, and its dividend is $20,000. Huckabeet Inc. has a residual dividend policy. 5. How much new debt has it just issued? a) $30,000 b) $40,000 c) $50,000 d) $60,000 e) None of the above New Debt = (D/E)(E) = (.5*(100,000-20,000)) = $40,000 6. What was the total amount of new investment this year by Huckabeet Inc.?
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F07 - 1FINANCE 401 RYERSON UNIVERSITY Final Exam December...

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