Corporate Finance 7.5 ECTS
Ladokcode: 21FT1C
The exam is given to:
ExamCode:
Date of exam: 2018-11-29
Time: 09-
13
Means of assistance:
Calculator
Total amount of point on exam: 40 points
Requirements for grading:
To get respective grade the the following points is required:
< 20 points = FX =U
20 points = E =G
22 points = D
26 points = C
30 points = B = VG
34 points = A
Next re-exam date: Exact date not decided yet
The marking period is, for the most part, 15 working days,
otherwise it’s the following date:
Important! Do not forget to write the ExamCode on each paper
you hand in.
Good Luck!
, 1
Examiner: Urban Österlund
Phone number: 0704-
38 33 68
Question 1. (6 points)
Use the following information for stock C and for the market
portfolio to solve the following questions.
State of the Probabili Return Return
economy ty of on C on
state market
Rapid growth 0,10 0,25 0,18
Moderate 0,20 0,10 0,20
growth 0,50 0,15 0,04
Normal 0,20 -0,12 0,00
growth
Recession
a/ What is the expected return for stock C and for the market
portfolio ? (1p)
b/ What is the standard deviation for stock C and the market
portfolio ? (2p)
c/ What is the covariance and the correlation between stock
C and the market portfolio ?
(2p)
d/ Calculate the beta-value for stock C.
(1p)
Question 2. (4 points)
The Sweet Crude company`s only asset is 20 000 barrels of oil.
The oil was purchased a few years ago for about $18 per barrel
and is now worth $25 per barrel. The firm has 1 000 shares
outstanding and intends to issue 500 warrants. Each warrant
will cost $180 and give the holder the option to buy one share
of Sweet Crude for $550.
, 2
a/ What is the the stock price per share immediately
before the warrants are issued ?
(1p)
b/ What is the stock price per share just after the warrant
is sold if the proceeds from the issue are immediately paid
out to existing shareholders as a dividend ?
(1p)
c/ Now assume that the warrants are about to expire. What
is the minumum oil price per barrel that would cause the
warrants to be exercised, if the firm has its original 20 000
barrel inventory ? (1p)
d/ Assume that the price of oil jumps to $30 per barrel, and
the firm has its original 20 000 barrel inventory. If the
warrants are now exercised, what is the new stock price ?
(1p)
Question 3. (3 points)
The NOGROWTH Company has a perpetual EBIT of $ 60 million
per year. The after-tax, all equity discount rate r U is 8 percent.
The company`s tax rate is 30 percent. The cost of debt capital
is 5 percent, and NOGROWTH has $450 million of debt in its
capital structure.
a/ What is NOGROWTH`s value ?
b/ What is NOGROWTH`s cost of equity (rE)?
c/ What is NOGROWTH`s weighted average cost of capital
(rWACC) ?
Question 4. (4 points)
a/ You have the following information:
Present value of business without option to abandon:
$46 million
Exercise price of the option: $45
million
Maturity of the option: 1 year
Interest rate (risk-free): 5%
Future value of business with high demand:$69 million
Ladokcode: 21FT1C
The exam is given to:
ExamCode:
Date of exam: 2018-11-29
Time: 09-
13
Means of assistance:
Calculator
Total amount of point on exam: 40 points
Requirements for grading:
To get respective grade the the following points is required:
< 20 points = FX =U
20 points = E =G
22 points = D
26 points = C
30 points = B = VG
34 points = A
Next re-exam date: Exact date not decided yet
The marking period is, for the most part, 15 working days,
otherwise it’s the following date:
Important! Do not forget to write the ExamCode on each paper
you hand in.
Good Luck!
, 1
Examiner: Urban Österlund
Phone number: 0704-
38 33 68
Question 1. (6 points)
Use the following information for stock C and for the market
portfolio to solve the following questions.
State of the Probabili Return Return
economy ty of on C on
state market
Rapid growth 0,10 0,25 0,18
Moderate 0,20 0,10 0,20
growth 0,50 0,15 0,04
Normal 0,20 -0,12 0,00
growth
Recession
a/ What is the expected return for stock C and for the market
portfolio ? (1p)
b/ What is the standard deviation for stock C and the market
portfolio ? (2p)
c/ What is the covariance and the correlation between stock
C and the market portfolio ?
(2p)
d/ Calculate the beta-value for stock C.
(1p)
Question 2. (4 points)
The Sweet Crude company`s only asset is 20 000 barrels of oil.
The oil was purchased a few years ago for about $18 per barrel
and is now worth $25 per barrel. The firm has 1 000 shares
outstanding and intends to issue 500 warrants. Each warrant
will cost $180 and give the holder the option to buy one share
of Sweet Crude for $550.
, 2
a/ What is the the stock price per share immediately
before the warrants are issued ?
(1p)
b/ What is the stock price per share just after the warrant
is sold if the proceeds from the issue are immediately paid
out to existing shareholders as a dividend ?
(1p)
c/ Now assume that the warrants are about to expire. What
is the minumum oil price per barrel that would cause the
warrants to be exercised, if the firm has its original 20 000
barrel inventory ? (1p)
d/ Assume that the price of oil jumps to $30 per barrel, and
the firm has its original 20 000 barrel inventory. If the
warrants are now exercised, what is the new stock price ?
(1p)
Question 3. (3 points)
The NOGROWTH Company has a perpetual EBIT of $ 60 million
per year. The after-tax, all equity discount rate r U is 8 percent.
The company`s tax rate is 30 percent. The cost of debt capital
is 5 percent, and NOGROWTH has $450 million of debt in its
capital structure.
a/ What is NOGROWTH`s value ?
b/ What is NOGROWTH`s cost of equity (rE)?
c/ What is NOGROWTH`s weighted average cost of capital
(rWACC) ?
Question 4. (4 points)
a/ You have the following information:
Present value of business without option to abandon:
$46 million
Exercise price of the option: $45
million
Maturity of the option: 1 year
Interest rate (risk-free): 5%
Future value of business with high demand:$69 million
