SampleExam_Final_woans

SampleExam_Final_woans - TIPPIE THE UNIVERSITY OF IOWA...

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THE UNIVERSITY OF IOWA H ENRY B. T IPPIE C OLLEGE OF B USINESS 6F:100 I NTRODUCTORY F INANCIAL M ANAGEMENT Final Exam GENERAL INSTRUCTIONS: Fill in the answer sheet using a #2 lead pencil. Fill out your name and student number and fill in the corresponding circles. Hand in both the exam and the answer sheet. MULTIPLE CHOICE INSTRUCTIONS: On the answer sheet, fill in the circle for the choice that represents the correct answer. If no choice matches your answer exactly, fill in the choice that comes closest to your answer. (4 points each) 1. Which of the following statements about the cost of capital is NOT correct? a. According to the traditional theory of WACC, a company’s capital structure affects its WACC. b. WACC calculations should be based on the after-tax costs of all the individual capital components. c. If a company with some debt financing has a tax rate increase, then, all else equal, its WACC will increase. d. Flotation costs can increase the WACC. e. An increase in the risk-free rate is likely to increase the marginal costs of both debt and equity financing. 2. Hot Dish Catering stock has a beta of 1.6 and Dipsy Dining stock has a beta of 1.2. They are both in the catering business. Assume that the stock market is efficient. Which of the following statements is most correct according to the Pure Play technique? a. The required return for projects (WACC) of Hot Dish will be lower than Dipsy. b. The required returns for projects (WACCs) of Hot Dish and Dipsy should be similar. c. The required return for projects (WACC) of Hot Dish will be higher than Dipsy. d. The pure play technique cannot be used because the betas are different. 3. According to E*Trade on 4/21/04, Abbot Labs has bonds outstanding with the following characteristics: P = 109.763, C = $3.20 every six months, M = 100.000 n = 6 payment left (six months between each) If it is exactly 6 months to the next coupon payment, what is Abbot Labs’ annual after tax cost of borrowing with debt if their tax rate is 35%? a.
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SampleExam_Final_woans - TIPPIE THE UNIVERSITY OF IOWA...

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