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  • Final Exam For Corporate Finance Module - Term 16.2.A Part 1: Short-Answer Questions

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    Huân Nguyễn
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    This document contains sample exam questions and practice problems for a corporate finance module. Part 1 includes short answer questions about pecking order theory, forms of market efficiency, and the size effect. Part 2 provides two practice problems calculating net present value, internal rate of return, payback period, and risk measures for investment projects and stock portfolios. The problems require calculating financial metrics like working capital, net fixed assets, earnings before interest and taxes, cash flows, and standard deviation of returns.

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    This document contains sample exam questions and practice problems for a corporate finance module. Part 1 includes short answer questions about pecking order theory, forms of market efficiency, and the size effect. Part 2 provides two practice problems calculating net present value, internal rate of return, payback period, and risk measures for investment projects and stock portfolios. The problems require calculating financial metrics like working capital, net fixed assets, earnings before interest and taxes, cash flows, and standard deviation of returns.

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    72 views3 pages

    Final Exam For Corporate Finance Module - Term 16.2.A Part 1: Short-Answer Questions

    Uploaded by

    Huân Nguyễn
    This document contains sample exam questions and practice problems for a corporate finance module. Part 1 includes short answer questions about pecking order theory, forms of market efficiency, and the size effect. Part 2 provides two practice problems calculating net present value, internal rate of return, payback period, and risk measures for investment projects and stock portfolios. The problems require calculating financial metrics like working capital, net fixed assets, earnings before interest and taxes, cash flows, and standard deviation of returns.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    of 3

    FINAL EXAM FOR CORPORATE FINANCE MODULE - TERM 16.2.

    A
    Part 1: Short-answer questions
    1) Pecking order and financial stack theories.
    2) All three forms: weak, semi-strong and strong form
    3) Both do not consider the size effect of the investment
    4) Asked price = 1,015.00
    Part 2: Practice Problems
    Problem 1
    INPUT
    Project life 4 years
    Fixed assets
    Original cost 1,000,000
    Depreciation period 5 years
    Disposal price 150,000
    Sales (TR) in year 1 800,000
    Sales growth rate (g) 10%
    Expenses to Sales ratio 60%
    Working capital at year 0 50,000
    WC grows at 5% for the next 2 years and then remain constant
    T 25%
    k 14.00%
    OUTPUT
    Year 0 1 2 3 4
    WC 50,000 52,500 55,125 55,125 0
    NFA 1,000,000 800,000 600,000 400,000 0
    Investment 1,050,000 852,500 655,125 455,125 0
    Sales 800,000 880,000 968,000 1,064,800
    Sales of fixed assets 150,000
    - Expenses 480,000 528,000 580,800 638,880
    - D&A 200,000 200,000 200,000 200,000
    - Cost of sales of fixed assets 200,000
    EBIT 0 -480,000 352,000 387,200 425,920
    EBIT(1-T) 0 -360,000 264,000 290,400 319,440
    -∆WC 50,000 2,500 2,625 0 -55,125
    -∆NFA 1,000,000 -200,000 -200,000 -200,000 -400,000
    FCF -1,050,000 -162,500 461,375 490,400 774,565
    k 14.00% 14.00% 14.00% 14.00%
    PV 1,002,080 1,304,871 1,026,178 679,443 0
    NPV 19,136 -47,920
    PI 1.0182
    IRR 14.79%
    Amount to recover 1,050,000 1,212,500 751,125 260,725 0
    PB period (years) 3.19 years
    NPV>0 => Accept the project

    Problem 2
    a)
    Scenario Probability RX RY RMarket Dev(X) Dev(Y) Dev(M)
    Recession 0.2 -0.08 -0.14 -0.02 -26.40% -38.40% -13.60%
    Boom 0.8 0.25 0.34 0.15 6.60% 9.60% 3.40%
    E[R] 18.40% 24.40% 11.60%
    Variance 1.7424% 3.6864% 0.4624%
    Cov(RX,RM) & Cov(RY,RM) 0.8976% 1.3056%
    Beta 1.94 2.82
    b)
    Portfolio P [50%X and 50%Y] 50% 50%
    E[R] 21.400%
    Cov(RAX,RY) 2.5344%
    Variance 2.6244%
    SD 16.20%
    c)
    X Y P
    E[R] 10% 24.40% 21.40%
    SD 13.2000% 19.2000% 16.2000%
    SD per E[R] 132.00% 78.69% 75.70%
    Stock X shows the lowest risk per return and, hence, should be the best choice.
    The portfolio does not have significantly lower risk since X and Y do not have a negative covariance.

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