微信客服：xiaoxionga100
微信客服：ITCS521
程序代写案例-IB9V00
时间：2022-06-30
IB9V00
Page 1 of 4
UNIVERSITY OF WARWICK
Paper Details
Paper Code: IB9V00
Paper Title: Corporate Finance
Exam Period: April 2022
Exam Rubric
Time Allowed: 2 hours
Exam Type: Unrestricted Open Book Examination - Permitted Texts: Any
Instructions
Answer ALL questions.
Questions 1-4 are worth 10% each.
Questions 5-8 are worth 15% each.
For quantitative questions, showing your work is required in addition to having the correct
results for full marks. Showing your work may also enable you for potential partial credit if
your results are incorrect.
Please ensure that you write your Warwick University ID number clearly on your submission.
CONTINUED…/
IB9V00
Page 2 of 4
[Question 1]
A firm makes a surprise announcement that it is going to have a leveraged recapitalization and will
target a debt-to-value ratio of 30% ongoing, at which point the debt will have a beta of 0.1.
Before this announcement, the firm had a market cap of €200 million, debt-to-value ratio of 20%,
equity beta of 1.2, risk-free debt, and a target debt level policy. The corporate tax rate is 20%.
What is the equity beta of the firm after the recapitalization?
(10 marks)
[Question 2]
A company is deciding whether to use the $200 million of cash on its balance sheet for either a share
repurchase or else a one-time special dividend. Before making the decision, the company stock price
is $20, and the company has 400 million shares outstanding. Assume there are perfect capital
markets with no taxes.
a. What is the stock price after either (i) a repurchase, or else (ii) a special dividend? Under
which of the two policies are the shareholders better off?
b. Consider yourself as a shareholder who would prefer the special dividend. However, the
company decides on the repurchase. How can you replicate for yourself the outcome of, if
instead, the company had chosen to pay the special dividend rather than the repurchase?
(10 marks)
[Question 3]
Buyer Inc has a stock price of $55, and Seller Inc has a stock price of $45. Now, the two companies
announce that they will merge. Buyer Inc will pay a 15% premium over Seller’s pre-merger
announcement stock price using a stock swap. What is the exchange ratio that Buyer will give of its
own stock for Seller’s stock?
(10 marks)
CONTINUED…/
IB9V00
Page 3 of 4
[Question 4]
You are going to take public in Q3 2022 the firm you founded in Q3 2018. In the IPO, the firm will
issue 3 million new shares. With the IPO, you forecast earnings before interest and taxes of $7
million for 2022.
The following shows information for the firm’s previous three funding rounds:
Round Date Investor Shares Share Price ($)
Series A Q3 2018 You 300,000 1.00
Series B Q3 2019 Angels 1,100,000 2.50
Series C Q3 2020 Venture capital 2,200,000 4.25
a. Your IPO price will be set at a firm value/EBIT ratio multiple of 26.0 based on 2022
forecasted earnings, which is in accordance with the price multiple of other recent
comparable IPOs. What will your IPO price per share be?
b. After the IPO, what fraction of the firm will you own?
(10 marks)
[Question 5]
For each of the following empirical findings, does the finding support only the Trade-Off theory (TO
only), only the Pecking Order theory (PO only), both theories (TO and PO), or neither theory
(neither), according to Fama and French (2002)?
For each part (a)-(e), provide an answer of either “TO only”, “PO only”, “TO and PO”, or “neither”.
a. Firms that have fewer investments have higher dividend payouts.
b. Firms that have more investments have less leverage.
c. Firms that are more profitable have lower leverage.
d. Short-term variation in earnings and investment is mostly absorbed by debt.
e. Firms that are more profitable have higher dividend payouts.
(15 marks)
CONTINUED…/
IB9V00
Page 4 of 4
[Question 6]
A firm has a current stock price of £30 with 9 million shares outstanding and two bond issues
outstanding. The two bonds are perpetual and make annual payments. The firm’s overall cost of
debt is the value-weighted average implied by the two outstanding debt issues.
The first bond issue has a face value of £80 million, 11% coupon, and price of 89 percent of par. The
second issue has a face value of £50 million, 8% coupon, and price of 79 percent of par. The
corporate tax rate is 28%. The risk-free rate is 7 percent. The market return is 16 percent. The firm’s
equity has a beta of 1.8.
What is the cost of capital for the firm?
(15 marks)
[Question 7]
A company has a £200 million market cap with no debt and 20 million shares. Now, the management
learns of a new project opportunity that would require an investment of £60 million financed
through new equity and have an expected payoff of £160 million. Assume that investors are risk
neutral and the risk-free rate is zero percent.
What is the value to current shareholders, on a per share basis, of the existence of the project
opportunity if it is (i) publicly known to the market, relative to if it is instead (ii) asymmetric
information knowable only by the management?
(15 marks)
[Question 8]
A firm has debt that will come due in one year. The total face value plus interest that will be due on
the debt is £100 million. The firm’s position has steadily deteriorated since it issued the debt five
years ago. Its only remaining asset is £25 million in cash.
The firm has the opportunity to take one of two projects, each of which costs £25 million. Assume
that investors are risk neutral and the risk-free rate is 10%.
Project A
Payoff in one year: £200 million with probability 0.05 and £0 with probability 0.95
Project B
Payoff in one year: £50 million with probability 0.6 and £30 million with probability 0.4
How would the firm rank the potential actions it can take, from best to worst, if:
a. There exists a debt agency problem?
b. Disregarding part (a), there does not exist any agency problems?
(15 marks)
End of Paper
Page 1 of 4
UNIVERSITY OF WARWICK
Paper Details
Paper Code: IB9V00
Paper Title: Corporate Finance
Exam Period: April 2022
Exam Rubric
Time Allowed: 2 hours
Exam Type: Unrestricted Open Book Examination - Permitted Texts: Any
Instructions
Answer ALL questions.
Questions 1-4 are worth 10% each.
Questions 5-8 are worth 15% each.
For quantitative questions, showing your work is required in addition to having the correct
results for full marks. Showing your work may also enable you for potential partial credit if
your results are incorrect.
Please ensure that you write your Warwick University ID number clearly on your submission.
CONTINUED…/
IB9V00
Page 2 of 4
[Question 1]
A firm makes a surprise announcement that it is going to have a leveraged recapitalization and will
target a debt-to-value ratio of 30% ongoing, at which point the debt will have a beta of 0.1.
Before this announcement, the firm had a market cap of €200 million, debt-to-value ratio of 20%,
equity beta of 1.2, risk-free debt, and a target debt level policy. The corporate tax rate is 20%.
What is the equity beta of the firm after the recapitalization?
(10 marks)
[Question 2]
A company is deciding whether to use the $200 million of cash on its balance sheet for either a share
repurchase or else a one-time special dividend. Before making the decision, the company stock price
is $20, and the company has 400 million shares outstanding. Assume there are perfect capital
markets with no taxes.
a. What is the stock price after either (i) a repurchase, or else (ii) a special dividend? Under
which of the two policies are the shareholders better off?
b. Consider yourself as a shareholder who would prefer the special dividend. However, the
company decides on the repurchase. How can you replicate for yourself the outcome of, if
instead, the company had chosen to pay the special dividend rather than the repurchase?
(10 marks)
[Question 3]
Buyer Inc has a stock price of $55, and Seller Inc has a stock price of $45. Now, the two companies
announce that they will merge. Buyer Inc will pay a 15% premium over Seller’s pre-merger
announcement stock price using a stock swap. What is the exchange ratio that Buyer will give of its
own stock for Seller’s stock?
(10 marks)
CONTINUED…/
IB9V00
Page 3 of 4
[Question 4]
You are going to take public in Q3 2022 the firm you founded in Q3 2018. In the IPO, the firm will
issue 3 million new shares. With the IPO, you forecast earnings before interest and taxes of $7
million for 2022.
The following shows information for the firm’s previous three funding rounds:
Round Date Investor Shares Share Price ($)
Series A Q3 2018 You 300,000 1.00
Series B Q3 2019 Angels 1,100,000 2.50
Series C Q3 2020 Venture capital 2,200,000 4.25
a. Your IPO price will be set at a firm value/EBIT ratio multiple of 26.0 based on 2022
forecasted earnings, which is in accordance with the price multiple of other recent
comparable IPOs. What will your IPO price per share be?
b. After the IPO, what fraction of the firm will you own?
(10 marks)
[Question 5]
For each of the following empirical findings, does the finding support only the Trade-Off theory (TO
only), only the Pecking Order theory (PO only), both theories (TO and PO), or neither theory
(neither), according to Fama and French (2002)?
For each part (a)-(e), provide an answer of either “TO only”, “PO only”, “TO and PO”, or “neither”.
a. Firms that have fewer investments have higher dividend payouts.
b. Firms that have more investments have less leverage.
c. Firms that are more profitable have lower leverage.
d. Short-term variation in earnings and investment is mostly absorbed by debt.
e. Firms that are more profitable have higher dividend payouts.
(15 marks)
CONTINUED…/
IB9V00
Page 4 of 4
[Question 6]
A firm has a current stock price of £30 with 9 million shares outstanding and two bond issues
outstanding. The two bonds are perpetual and make annual payments. The firm’s overall cost of
debt is the value-weighted average implied by the two outstanding debt issues.
The first bond issue has a face value of £80 million, 11% coupon, and price of 89 percent of par. The
second issue has a face value of £50 million, 8% coupon, and price of 79 percent of par. The
corporate tax rate is 28%. The risk-free rate is 7 percent. The market return is 16 percent. The firm’s
equity has a beta of 1.8.
What is the cost of capital for the firm?
(15 marks)
[Question 7]
A company has a £200 million market cap with no debt and 20 million shares. Now, the management
learns of a new project opportunity that would require an investment of £60 million financed
through new equity and have an expected payoff of £160 million. Assume that investors are risk
neutral and the risk-free rate is zero percent.
What is the value to current shareholders, on a per share basis, of the existence of the project
opportunity if it is (i) publicly known to the market, relative to if it is instead (ii) asymmetric
information knowable only by the management?
(15 marks)
[Question 8]
A firm has debt that will come due in one year. The total face value plus interest that will be due on
the debt is £100 million. The firm’s position has steadily deteriorated since it issued the debt five
years ago. Its only remaining asset is £25 million in cash.
The firm has the opportunity to take one of two projects, each of which costs £25 million. Assume
that investors are risk neutral and the risk-free rate is 10%.
Project A
Payoff in one year: £200 million with probability 0.05 and £0 with probability 0.95
Project B
Payoff in one year: £50 million with probability 0.6 and £30 million with probability 0.4
How would the firm rank the potential actions it can take, from best to worst, if:
a. There exists a debt agency problem?
b. Disregarding part (a), there does not exist any agency problems?
(15 marks)
End of Paper
