Visitor $0.00 Login or Register

Fight Finance

Courses Tags Random All Recent Scores

Question 69 interest tax shield, capital structure, leverage, WACC

Which statement about risk, required return and capital structure is the most correct?

(a) The before-tax cost of debt is less than the before-tax cost of equity. Therefore debt is a cheaper form of financing than equity so companies should try to finance their projects with debt only.

(b) Debt makes a firm's equity more risky. Therefore the higher the amount of debt, the higher the cost of equity.

(c) The more debt a firm has, the higher its tax shields. Therefore firms should seek to have as much debt and as little equity as possible.

(d) The more debt, the lower the firm's after tax WACC. The after tax WACC is the discount rate that discounts the firm's cash flows, so the lower it is the more the firm is worth. Therefore firms should try to make their after tax WACC as low as possible by using as much debt as possible.

(e) The less debt, the lower the chance of bankruptcy. Therefore firms should try to pay off all of their debt so that they are financed by equity only.

Question 88 WACC, CAPM

A firm can issue 3 year annual coupon bonds at a yield of 10% pa and a coupon rate of 8% pa.

The beta of its levered equity is 2. The market's expected return is 10% pa and 3 year government bonds yield 6% pa with a coupon rate of 4% pa.

The market value of equity is $1 million and the market value of debt is $1 million. The corporate tax rate is 30%.

What is the firm's after-tax WACC? Assume a classical tax system.

Question 160 interest only loan

You want to buy an apartment priced at $500,000. You have saved a deposit of $50,000. The bank has agreed to lend you the $450,000 as an interest only loan with a term of 30 years. The interest rate is 6% pa and is not expected to change. What will be your monthly payments?

Question 329 DDM, expected and historical returns

In the dividend discount model:

### P_0= \frac{d_1}{r-g} ###

The pronumeral ##g## is supposed to be the:

Question 476 income and capital returns, idiom

The saying "buy low, sell high" suggests that investors should make a:

Question 490 expected and historical returns, accounting ratio

Which of the following is NOT a synonym of 'required return'?

Question 557 portfolio weights, portfolio return

An investor wants to make a portfolio of two stocks A and B with a target expected portfolio return of 6% pa.

Stock A has an expected return of 5% pa.
Stock B has an expected return of 10% pa.

What portfolio weights should the investor have in stocks A and B respectively?

Question 642 future, no explanation

Which of the below formulas gives the payoff at maturity ##(f_T)## from being short a future? Let the underlying asset price at maturity be ##S_T## and the locked-in futures price be ##K_T##.

Question 664 real and nominal returns and cash flows, inflation, no explanation

What is the present value of real payments of $100 every year forever, with the first payment in one year? The nominal discount rate is 7% pa and the inflation rate is 4% pa.

Question 768 accounting terminology, book and market values, no explanation

Accountants and finance professionals have lots of names for the same things which can be quite confusing.

Which of the following groups of items are NOT synonyms?