Corporate Finance Foundations - Linkedin
Learning
Astra Containers is seeking to borrow $45 million at an interest rate of 6 percent. Astra will raise
an additional $30 million through equity investment, returning 10 percent. What is the WACC? -
ANS - 7.6 percent
\Finance is sometimes considered the process of borrowing money to pay for something. Which
broader activities best define the scope of finance? - ANS - Deciding what to buy and how to
manage it.
\From the discussion of the definition of beta, identify the market category that would have the
highest beta. - ANS - Luxury goods
\How are risk and return related? - ANS - Lower risk implies low return, and high return implies
high risk
\How would you best define the concept of capital structure in finance? - ANS - The mix of deat
and owner investment
\If Astra Containers became a publicly-traded company, it could more easily raise capital. What
would be the disadvantages? - ANS - Increased regulation, loss of control and shorter time
horizons
\If the inflation rate is about 7 percent, then what would you expect the risk-free rate to be? -
ANS - 10 percent
\The public debt of Astra Containers would be held in _____ bonds. - ANS - Corporate
\Thierry owns stock in two companies in the United States. The first has a beta of 0.73, and the
second has a beta of 1.48. What is the difference in expected rates of return for the two
companies? - ANS - 4.5 percent
\What is the implication of a low value of beta? - ANS - Insensitivity to the broad market
\Which payment scheme would have the largest present value? - ANS - a payment of $100,000
at the end of this year.
\Which type of payment is most easily adjusted to accommodate circumstances?Divident - ANS
- Divident
\Why do equity investors require a higher return than lenders? - ANS - Lenders are protected by
law.
\
Learning
Astra Containers is seeking to borrow $45 million at an interest rate of 6 percent. Astra will raise
an additional $30 million through equity investment, returning 10 percent. What is the WACC? -
ANS - 7.6 percent
\Finance is sometimes considered the process of borrowing money to pay for something. Which
broader activities best define the scope of finance? - ANS - Deciding what to buy and how to
manage it.
\From the discussion of the definition of beta, identify the market category that would have the
highest beta. - ANS - Luxury goods
\How are risk and return related? - ANS - Lower risk implies low return, and high return implies
high risk
\How would you best define the concept of capital structure in finance? - ANS - The mix of deat
and owner investment
\If Astra Containers became a publicly-traded company, it could more easily raise capital. What
would be the disadvantages? - ANS - Increased regulation, loss of control and shorter time
horizons
\If the inflation rate is about 7 percent, then what would you expect the risk-free rate to be? -
ANS - 10 percent
\The public debt of Astra Containers would be held in _____ bonds. - ANS - Corporate
\Thierry owns stock in two companies in the United States. The first has a beta of 0.73, and the
second has a beta of 1.48. What is the difference in expected rates of return for the two
companies? - ANS - 4.5 percent
\What is the implication of a low value of beta? - ANS - Insensitivity to the broad market
\Which payment scheme would have the largest present value? - ANS - a payment of $100,000
at the end of this year.
\Which type of payment is most easily adjusted to accommodate circumstances?Divident - ANS
- Divident
\Why do equity investors require a higher return than lenders? - ANS - Lenders are protected by
law.
\
