Question 1
ANSWER ALL PARTS OF THIS QUESTION.
returns in four different states of
' ' x ected
Red Apple plc and Baba Shrlmps plc have the followmg e p have equal probability of
the economy as shown below. Note that all states of the economy
occurr

LANCASTER UNIVERSITY
2013 EXAMINATIONS
PART II
(SECOND AND FINAL YEAR)
ACCOUNTING AND FINANCE
AcF 214
PRINCIPLES OF FINANCE
(2 HOURS PLUS 15 MINUTES READING TIME)
This examination paper consists of four questions, each bearing 50 marks.
Answer only TWO qu

LANCASTER UNIVERSITY
2012 EXAMINATIONS
PART II
(SECOND YEAR)
ACCOUNTING AND FINANCE
AcF 214
PRINCIPLES OF FINANCE
(2 HOURS PLUS 15 MINUTES READING TIME)
The examination comprises four questions, each bearing 50 marks. Two questions should be
answered.
Cle

AcF 214 Tutorial
Week 9
Question 15.22
n
Markum Enterprises is considering permanently adding $100 million
of debt to its capital structure. Markums corporate tax rate is 35%.
n
a. Absent personal taxes, what is the value of the interest tax shield
from t

LANCASTERUNIVERSITY
MANAGEMENTSCHOOL
DEPARTMENTOFACCOUNTINGANDFINANCE
AcF214MPRINCIPLESOFFINANCE
MICHAELMASTERM2013
Tutorial Exercises Week 5
1.
Using the historical returns in the following table, estimate (a) the covariance between the stocks,
and (b) t

AcF 214 Tutorial
Week 6
Q1. The stock of Cumbrian Industries (CI) has a current market
value of 100 million and a beta of 1.5. The firm also has 100
million of outstanding riskless debt. CI decides to reduce its debt
by 50 million by issuing new equity. C

PART II
(SECOND YEAR)
ACCOUNTING AND FINANCE
AcF 214
PRINCIPLES OF FINANCE
2 HOURS PLUS 15 MINUTES READING TIME
The examination comprises four questions, each bearing 50 marks. Two questions should be
answered.
Clearly identify your answers to each part o

LANCASTERUNIVERSITY
MANAGEMENTSCHOOL
DEPARTMENTOFACCOUNTINGANDFINANCE
AcF214MPRINCIPLESOFFINANCE
MICHAELMASTERM2013
Tutorial Exercises Week 2
1.
You are considering opening a new plant. The plant will cost $100 million upfront. After that, it
is expected

Exercises week 1
1.
To find the mean we sum all the data entries given and then divide it by 10 which is the number
of all data entries.
Thus:
2.2 + 2.8 + 3.0 + 2.5 + 2.4 + 2.6 +2.5 + 2.4 + 2.7 + 2.6 = 2.57%
10
Answer: The population mean is 2.57%
2. To c

Exercise 1
Find a 95% confidence interval for the population mean.
Given that:
=0.45
n=25
X =2.90
With 95% of confidence, using the table, Za/2=1.96
We use the following formula for small sample size and known :
Therefore, we have 2.90
1.96 0.45 = [2.7236

Exercise 1
A random sample of companies was surveyed and asked to indicate if they had used an internet
career service site to search for prospective employees. The companies were also asked questions
concerning the posting fee for use of such a site. Is

Exercise 1
A screening procedure was designed to measure attitudes toward minorities as managers. High
scores indicate negative attitudes and low scores indicate positive attitudes. Independent random
samples were taken of 151 male financial analysts and

Exercise 1
In a random sample of 150 business graduates 50 agreed or strongly agreed that businesses
should focus their efforts on innovative e-commerce strategies.
Test at the 5% level of significance if more than 25% of all business graduates would be i

PART II
(SECOND AND FINAL YEAR)
ACCOUNTING AND FINANCE
AcF 214 Principles of Finance
(2 hours + 15 minutes reading time)
The examination comprises four questions, each bearing 50 marks. Two
questions should be answered.
Clearly identify your answers to ea

PART II
(SECOND AND FINAL YEAR)
ACCOUNTING AND FINANCE
AcF 214 Principles of Finance
(2 hours + 15 minutes reading time)
The examination comprises four questions, each bearing 50 marks. Two
questions should be answered.
Clearly identify your answers to ea

LANCASTERUNIVERSITY
MANAGEMENTSCHOOL
DEPARTMENTOFACCOUNTINGANDFINANCE
AcF214MPRINCIPLESOFFINANCE
MICHAELMASTERM2013
Tutorial Exercises Week 7
1. What does it mean if an asset is located above (below) the security market line (SML)?
2. Describe the three f

LANCASTERUNIVERSITY
MANAGEMENTSCHOOL
DEPARTMENTOFACCOUNTINGANDFINANCE
AcF214MPRINCIPLESOFFINANCE
MICHAELMASTERM2013
Tutorial Exercises Week 6
1.
The stock of Cumbrian Industries (CI) has a current market value of 100 million and a beta of 1.5. The
firm al

LANCASTERUNIVERSITY
MANAGEMENTSCHOOL
DEPARTMENTOFACCOUNTINGANDFINANCE
AcF214MPRINCIPLESOFFINANCE
MICHAELMASTERM2013
Tutorial Exercises Week 3
6-23.
You are deciding between two mutually exclusive investment opportunities. Both require the
same initial inv

LANCASTERUNIVERSITY
MANAGEMENTSCHOOL
DEPARTMENTOFACCOUNTINGANDFINANCE
AcF214MPRINCIPLESOFFINANCE
MICHAELMASTERM2013
Tutorial Exercises Week 4
1.
The following table shows the one-year return distribution of Startup, Inc. Calculate
a.
The expected return.

Week 9 Tutorial AcF 214
15-22.
Markum Enterprises is considering permanently adding $100 million of debt to its capital
structure. Markums corporate tax rate is 35%.
a.
Absent personal taxes, what is the value of the interest tax shield from the new debt?

LANCASTER UNIVERSITY
MANAGEMENT SCHOOL
DEPARTMENT OF ACCOUNTING AND FINANCE
AcF 214L - PRINCIPLES OF FINANCE
LENT TERM 2013
Tutorial Exercises Week 8
14-2.
You are an entrepreneur starting a biotechnology firm. If your research is successful, the technolo

LANCASTER UNIVERSITY
MANAGEMENT SCHOOL
DEPARTMENT OF ACCOUNTING AND FINANCE
AcF 214M - PRINCIPLES OF FINANCE
MICHAELMAS TERM 2013
Tutorial Exercises Week 10
17-27. Explain under which conditions an increase in the dividend payment can be interpreted as a

AcF 214 Tutorial
Week 7
What does it mean if an asset is located above (below) the security
market line (SML)?
Security Market
Line
Return
Market return = r
Risk-free return =
m
.
B
r j = r f + (rm r f ) j
Market portfolio
rf
Beta
1.0
Beta of market portf

AcF 214 Tutorial
Week 3
Question 6.23
Use the incremental IRR rule to choose between projects A & B.
Cost of capital 7%.
0
A:
B:
-10
-10
1
+2
+1.5
2
+2
+1.5(1.02)
3
+2
+1.5(1.02)2
To calculate the incremental IRR subtract A from B (i.e. A is the
basic pro

AcF 214 Tutorial
Week 2
1
Question 1.
Cost of plant: $100 million upfront
Profits: $30 m. per year (at the end of every year) and are
expected to last forever
Cost of capital: 8% per year
(a)
Calculate the NPV. Should you go ahead with this investment?
(b

AcF 214 Tutorial
Week 5
Question 1.
a) Average return:
RA ( 10% 20% 5% 5% 2% 9%) / 6 3.5%
R B ( 21% 7% 30% 3% 8% 25%) / 6 12%
SD( A) 0.1060
SD( B ) 0.1565
b) Covariance between the stocks?
c) Correlation between these two stocks?
Question 2.
Question 3.
C

AcF 214 Tutorial
Week 8
Question 14.2
You are an entrepreneur starting a biotechnology firm. If your research is successful,
the technology can be sold for $30 million. If your research is unsuccessful, it will be
worth nothing. To fund your research, you