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MGT 3062: FINANCIAL MANAGEMENT SUMMER 2008 EXAM 3 Version 4 Choose the BEST answer to each question. Bubble in your answer on the form provided. For computational questions, show your work (for possible partial credit). If you feel that the answer is not provided, show your work, explain your assumptions, and write your answer on the exam. Questions are worth 2.8 points each (consider 4 questions to be "bonus" questions). Remove all hats and dark glasses. If you have to go to the restroom, go now. No electronic devices allowed. You may not use your cell phone as a calculator. As a courtesy to your classmates, no questions allowed after initial instructions are given. Ethics Challenge: I swear by everything I hold sacred and my family honor that: the work on this exam is my own without any outside assistance; that I did not provide assistance to another classmate; that I used no electronic devices for information storage, retrieval, or communications; that I have abided by the Georgia Tech honor code in the preparation and execution of this exam. Print Name: Signature: 1. The tax savings derived from the deductibility of interest expense is called the: A. current yield. B. tax-loss carryforward savings. C. depreciable basis. D. financing umbrella. E. interest tax shield. 2. A firm should select the capital structure that: A. produces the highest cost of capital. B. equates the value of debt with the value of equity. C. minimizes taxes. D. maximizes the value of the firm. E. is fully unlevered. 3. The optimal capital structure has been achieved when the: A. cost of equity is maximized given a pre-tax cost of debt. B. debt-equity ratio is such that the cost of debt exceeds the cost of equity. C. debt-equity ratio is equal to 1. D. weight of equity is equal to the weight of debt. E. debt-equity ratio results in the lowest possible weighted average cost of capital. THE BUSINESS SCHOOL AT GEORGIA TECH Barry Marchman, Ph.D. Room 407 (404) 894-5110
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4. A security issued in the United States that represents shares of a foreign stock and allows that stock to be traded in the United States is called a(n): A. Yankee bond. B. foreign obligation trust certificate. C. American Depository Receipt. D. Yankee stock. E. Eurostock. 5. The implicit exchange rate between two currencies when both are quoted in some third currency is called a(n): A. open exchange rate. B. backward rate. C. forward rate. D. interest rate. E. cross-rate. 6. Gilts are government securities issued by: A. Britain and Ireland. B. Germany. C. Japan. D. Italy. E. Australia and New Zealand. 7. The rate most international banks charge one another for overnight Eurodollar loans is called the: A. London Interbank Offer Rate. B. international prime rate.
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