Opened Book: Corporate Finance Ii MNJ206 / MNJ43
Opened Book: Corporate Finance Ii MNJ206 / MNJ43
Opened Book: Corporate Finance Ii MNJ206 / MNJ43
MID-TERM EXAMINATION
CORPORATE FINANCE II
MNJ206 / MNJ43
INSTRUCTIONS TO CANDIDATES:
1. Check the following exam paper information:
Exam paper:
Total number of pages : 2 (including cover pages)
Attached materials : -
Total number of sections : 1
Total number of questions : 4
Instructions:
Doing the 4 questions below, and each given a weighting of 25%.
2. Please write your name and student ID on the exam paper and answer sheets.
Student Name ……………………………………………..
Student ID ……………………………………………..
3. Candidates may use this exam paper to write notes as necessary, but should not remove
it from the examination venue for any reason.
1. Thomas Brothers is expected to pay a $0.50 per share dividend at the end of the year.
The dividend is expected to grow at a constant rate of 7 percent a year. The required
rate of return on the stock is 15 percent. What is the value per share of the company’s
stock?
2. Chemical Biotech Ltd. has a market value of its debts of $400 millions with 8% cost of
debt. Currently, there are 10 million shares outstanding, each traded at $60. If the
company has an 10% tax rate, the risk-free rate is 4% and the expected return on the
market portfolio is 12%, calculate the Weighted Average Cost of Capital (WACC). Note
that Chemical Biotech Ltd. Has a market risk of 1.1 (beta).
3. Our firm has 800,000 shares of common stock outstanding, no debt, and a marginal tax
rate of 40%. We need $6,000,000 to finance a proposed project. We are considering
two options. First option issue 200,000 shares of common stock at $30 per share, or
second option to borrow $6,000,000 by issuing 10% bonds.
a. If EBIT is $2,000,000, which option is best?
b. If EBIT is $4,000,000, which option is best?
c. What is the break-even EBIT?
4. The company with the common equity accounts shown here has declared a 15% stock
dividend when the market value of its stock is $35 per share. What effect on the equity
accounts will the distribution of the stock dividend have?