ACF Final Exam Questions With 100% Correct Answers.

ACF Final Exam Questions With 100% Correct Answers. T/F WACC formula works for the "AVERAGE RISK" project - answerTrue T/F When calculating WACC for firm, one should only use MARKET values of DEBT and EQUITY - answerTrue T/F Discounting @ WACC assumes debt is rebalanced every period to maintain constant ratio debt to market value of firm - answerTrue T/F Discounting @ WACC assumes that the ratio of the debt supported by a project to the project's value remains UNCHANGED over the project's economic life - answerTrue T/F When calculating WACC for firm, one should only use BOOK values of debts & equity - answerFalse T/F The WACC formula works for the "average risk" project - answerTrue T/F Discounting @ WACC assumes that the ratio of the debt supported by a project to the project's value VARIES over the project's economic life - answerFalse You are presented with a two-stage FCFF valuation model. Which is the best tax rate to use? - answeruse ETR in aggressive growth stage, MTR in stable growth stage Which factors determine asset beta of the firm? - answerOperating leverage & nature of product offered by the company A firm has both equity and debt in its capital structure. If a project has a negative NPV (according to the WACC), how is this value split between the equity and debt holders? - answerAll goes to debt because equity has limited liability. Which costs in the following list represent indirect cost of financial distress? - answerSelling assets to meet financial obligations Conditions of bankruptcy - answerz1.2 Bankrupt 1.2z2.9 Grey Area - recover or decline in credit worthiness z2.9 unlikely to go bankrupt Which of the following situations might a stock repurchase result in decreased firm value? - answerWhen a firm executes a targeted repurchase in order to buy back shares from specific shareholders at above market prices T/F Venture capitalists typically provide first stage financing sufficient to cover all development expenses. Second-stage financing is provided by stock issued in an IPO - answerFalse T/F Large companies' stock may be listed and traded on several different international exchanges - answerTrue T/F Stock price generally falls when the company announced a new issue of shares. This is attributable to the information released by the decision to issue - answerTrue T/F Although announcement of dividend payment results in increase in price of stock, on average, announcement of repurchase of shares does not seem to affect stock price - answerFalse T/F Both announcement of dividend payment & announcement of share repurchase tend to result in increase in stock price of same magnitude when they result in similar payouts - answerTrue T/F Stock splits and stock dividends are simply accounting changes; market recognizes this & thus stock price is unaffected by announcement of stock split or stock dividend. - answerFalse T/F In financial markets, riskier firms have lower PEG ratios and higher PE ratios. - answerTrue T/F Firms with higher expected growth rate have lower PE ratio - answerFalse T/F Firms with more efficient growth have higher PEG ratios and lower PE ratios - answerFalse T/F The firm's equity beta is usually higher than firm's asset beta - answerTrue T/F A combination of high PBV ratio & low expected return on equity suggests overvalued stock. - answerFalse T/F Other things equal, higher-growth stock have higher PBV ratio than lower growth stock - answerTrue T/F Firms with higher dividend payout will have a higher fundamental PBV ratio - answerFalse High-risk firms - answerLow current earnings Low PE ratio