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SDSU BA 323 FINANCE FINAL VERIFIED EXAM
NEWEST 2026/2027 ACTUAL EXAM COMPLETE
QUESTIONS AND CORRECT DETAILED ANSWERS
(VERIFIED ANSWERS) |A+ GRADED||NEWEST
EXAM!!!
What does the Hamada equation try to quantify the trade
off between? - ANSWER-The Hamada equation quantifies
the increase cost of equity due to financial leverage. Or,
how adding more debt increases the cost of equity.
What are the two ways to find a firm's optimal capital
structure. - ANSWER-Minimize WACC or maximize the
stock price.
What is the Modigliani-Miller Irrelevance Theory? -
ANSWER-Trade off between tax benefits of debt and
bankruptcy cost
What are signaling effects in capital structure? - ANSWER-
Managers have better information about a firm's long-run
value than outside investors.
What will management do if they believe the stock is
overvalued or undervalued? - ANSWER-If overvalued,
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stock will be issued. If undervalued, buyback shares or
issue debt
Why do investors view stock offerings as negative for the
firm's future prospects? - ANSWER-Investors view strong
offering as a negative sign because they think that the
company may not be optimistic about the future.
What are various risk factors for multinational
corporations? - ANSWER-Different currency exchange
rate, political risk, economic and legal ramifications, role of
governments, and language and culture differences.
How do companies hedge currency risk? - ANSWER-Use
exchange rate futures/forwards to hedge currency risk
What is exchange rate risk? - ANSWER-The risk that the
value of cash flows will change due to changes in the
value of exchange rates.
Why do companies care about exchange rate risk? -
ANSWER-Impact costs and profitability
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How do companies mitigate exchange rate risk? -
ANSWER-Hedge using future/forwards
What is the international monetary system? - ANSWER-
The framework within which exchange rates are
determined
What is the difference between devaluation and
revaluation? - ANSWER-When the government increases
or decreases the value of the currency
What is the difference between depreciation and
appreciation? - ANSWER-When market forces cause
currencies to increase or decrease
What are the 5 different types of currency regimes? -
ANSWER-Freely floating, managed float, no local
currency, currency board, fixed peg
Why do we care about the weighted average cost of
capital (WACC)? - ANSWER-WACC is necessary for
making corporate investment decisions, such as building a
new factory. WACC gauges the risk of a project (Higher
WACC means more risk associated.) Two sides of an
investment decision:
SDSU BA 323 FINANCE FINAL VERIFIED EXAM
NEWEST 2026/2027 ACTUAL EXAM COMPLETE
QUESTIONS AND CORRECT DETAILED ANSWERS
(VERIFIED ANSWERS) |A+ GRADED||NEWEST
EXAM!!!
What does the Hamada equation try to quantify the trade
off between? - ANSWER-The Hamada equation quantifies
the increase cost of equity due to financial leverage. Or,
how adding more debt increases the cost of equity.
What are the two ways to find a firm's optimal capital
structure. - ANSWER-Minimize WACC or maximize the
stock price.
What is the Modigliani-Miller Irrelevance Theory? -
ANSWER-Trade off between tax benefits of debt and
bankruptcy cost
What are signaling effects in capital structure? - ANSWER-
Managers have better information about a firm's long-run
value than outside investors.
What will management do if they believe the stock is
overvalued or undervalued? - ANSWER-If overvalued,
,2|Page
stock will be issued. If undervalued, buyback shares or
issue debt
Why do investors view stock offerings as negative for the
firm's future prospects? - ANSWER-Investors view strong
offering as a negative sign because they think that the
company may not be optimistic about the future.
What are various risk factors for multinational
corporations? - ANSWER-Different currency exchange
rate, political risk, economic and legal ramifications, role of
governments, and language and culture differences.
How do companies hedge currency risk? - ANSWER-Use
exchange rate futures/forwards to hedge currency risk
What is exchange rate risk? - ANSWER-The risk that the
value of cash flows will change due to changes in the
value of exchange rates.
Why do companies care about exchange rate risk? -
ANSWER-Impact costs and profitability
, 3|Page
How do companies mitigate exchange rate risk? -
ANSWER-Hedge using future/forwards
What is the international monetary system? - ANSWER-
The framework within which exchange rates are
determined
What is the difference between devaluation and
revaluation? - ANSWER-When the government increases
or decreases the value of the currency
What is the difference between depreciation and
appreciation? - ANSWER-When market forces cause
currencies to increase or decrease
What are the 5 different types of currency regimes? -
ANSWER-Freely floating, managed float, no local
currency, currency board, fixed peg
Why do we care about the weighted average cost of
capital (WACC)? - ANSWER-WACC is necessary for
making corporate investment decisions, such as building a
new factory. WACC gauges the risk of a project (Higher
WACC means more risk associated.) Two sides of an
investment decision:
