corperatefinance

1、Corporate FinanceUniversity of International Business and EconomicsSPRING, 2010SITECORPORATE FINANCETake Home Midterm Exam(Time allowed: THREE hours)NOTE: Answer any FIVE of ALL of SEVEN questions. All questions carry equal marks. EachQuestion is worthy of 20 marks. Partial marks will be given so pl

2、ease try your bestto be very clear in explaining your derivations in every step. The exam will not becurved. But I highly suggest to try every question for practice.1. Eureka Space Technology Group (an all-equity firm) is announcing a $100 million R&D project, which is expected to drastically im

3、prove its satellite launching technology by reducing its annual launching costs from $500 million to $475 million. The firm can finance the project through either retained earnings or a new bond issue. The firms cost of equity capital is 12.5 percent. The prevailing market rate of interest for compa

4、rable corporate bonds is 8 percent. Currently, the firm has 15 million shares of stock outstanding at $32.5 a share. The firm has sufficient earnings to fully utilize the corporate tax shield if the project is debt financed. Assume the relevant marginal corporate tax rate is 35 percent. a. Which fin

5、ancing method, retained earnings or external debt financing, would you recommend to the management and why?應(yīng)該采用外部債務(wù)融資的方式，因?yàn)橛捎谟卸愂盏拇嬖?，利息的抵稅效?yīng)可以增加公司價(jià)值。全部采用權(quán)益融資項(xiàng)目現(xiàn)金流為：（500-475）（1-35%）=16.25項(xiàng)目的現(xiàn)值為：130項(xiàng)目的凈現(xiàn)值為：130-100=30 若公司全部采取債務(wù)融資，APV=NPV+B則調(diào)整凈現(xiàn)值為：30+100=65因此公司的價(jià)值會增加。 b. What is the resulting PV of the f

6、irm from each of these two financing methods?全部采用權(quán)益融資PV=30+32.5=517.5全部采用外部債務(wù)融資PV=65+32.5=552.5 c. What do you expect will be the stock market stock price response to the two different methods?全部采用權(quán)益融P=517.5=34.5美元全部采用外部債務(wù)融資P=552.5=36.8美元 d. Explain the intuition behind the results in part (c).杠桿企業(yè)的

7、公司價(jià)值更高說明，在不考慮破產(chǎn)成本等由于增加債務(wù)而帶來的成本和風(fēng)險(xiǎn)等因素時(shí)，債務(wù)的節(jié)稅效應(yīng)增加了公司的市場價(jià)值，企業(yè)應(yīng)該盡可能多的利用債務(wù)進(jìn)行融資。2. The Gulf Power Company is an electric utility planning to build a new power-generating plant of conventional design. The company has traditionally paid out all earnings to the stockholders as dividends and financed capital

8、expenditures with new issues of common stock. There is no debt or preferred stock presently outstanding. Data on the company and the new power plant follow. Assume all earnings streams are perpetuities that are constant.Company DataCurrent annual earnings: $27 millionNumber of outstanding shares: 10

9、 millionNew Power Plant Initial outlay: $20 millionAdded annual earnings: $3 millionManagement estimates the rate of return currently required by stockholders to be 10 percent per year and considers the power plant to have the same risk as existing assets. Assume there are no taxes, no costs of bank

10、ruptcy, and perfect capital markets. a. What will be the total market value of Gulf Power if common stock is issued to finance the plant?舊資產(chǎn)的價(jià)值：270新工廠的凈現(xiàn)值：=10新股發(fā)行的收益：20公司的價(jià)值為：270+10+20=300 b. What will be the total value (stocks plus bonds) of the firm if $20 million in bonds at an interest rate of

11、8 percent is issued to finance the plant, assuming the bonds are perpetuities?舊資產(chǎn)的價(jià)值= 新工廠的凈現(xiàn)值：=10新增的債務(wù)的價(jià)值：公司的價(jià)值為：270+10+20=300 c. Given that bonds will be issued as in (b), calculate the rate of return required by stockholders after the financing has occurred and the plant has been built.=10%+=10.15

12、%3. Kinedyne, Inc., has decided to divest one of its divisions. The assets of the group have the same operating risk characteristics as those of the parent firm. The capital structure for the parent has been stable at 40-percent debt/60-percent equity (in market-value terms), the level determined to

13、 be optimal given the firms assets. The required return on Kinedynes assets is 16 percent, and the firm (and the division) borrows at a rate of 10 percent. Sales revenue for the division is expected to remain stable indefinitely at last years level of $19,740,000. Variable costs amount to 60 percent

14、 of sales. Annual depreciation of $1.8 million is exactly matched each year by new investment in the divisions equipment. The division would be taxed at the parents current rate of 40 percent. a. How much is the division worth in unleveraged form?無杠桿公司的自由現(xiàn)金流為：UCF=19740000+1800000=5457600 =10% 解得=22.

15、67% 解得 無杠桿公司的價(jià)值為： b. If the division had the same capital structure as the parent firm, how much would it be worth? c. At this optimal capital structure, what return will the equityholders of the division require?每年的利息為：有杠桿公司權(quán)益的現(xiàn)金流為：LCF=UCF- =5457600=4638960 d. Show that the market value of the equi

16、ty of the division would be justified by the earnings to shareholders and the required return on equity. =10% 解得=22.67%由第三題和第一題的結(jié)果可知，權(quán)益的市場價(jià)值可以由權(quán)益的現(xiàn)金流和權(quán)益要求的回報(bào)率的比值得出。4. National Business Machine Co. (NBM) has $2 million of extra cash. NBM has two choices to make use of this cash. One alternative is to

17、 invest the cash in financial assets. The resulted investment income will be paid out as a special dividend at the end of three years. In this case, the firm can invest in Treasury bills yielding 7 percent, or an 11 percent preferred stock. Only 30 percent of the dividends from investing in preferre

18、d stock would be subject to corporate taxes. Another alternative is to pay out the cash as dividends and let the shareholders invest on their own in Treasury bills with the same yield. The corporate tax rate is 35 percent, and the individual tax rate is 31 percent.Should the cash be paid today or in

19、 three years? Which of the two options generates the highest after-tax income for the shareholders?l若三年后支付，公司應(yīng)將現(xiàn)金投資于優(yōu)先股，取國庫券的利率為折現(xiàn)率，股東得到的紅利的現(xiàn)值為：若現(xiàn)在發(fā)放股利，股東得到的股利為：1.38所以應(yīng)該三年后發(fā)放，這時(shí)股東得到的稅后收入最大5. In 1980 a certain assistant professor of finance bought 12 initial public offerings of common stock. He held

20、each of these for approximately one month and then sold them. The investment rule he followed was to submit a purchase order for every firm-commitment initial public offering of oil- and gas-exploration companies. There were 22 such offerings, and he submitted a purchase order for approximately $1,0

21、00 of stock for each one. With 10 of these, no shares were allocated to this assistant professor. With five of the 12 offerings that were purchased, fewer than the requested number of shares were allocated. The year 1980 was very good for oil- and gas-exploration company owners. For the 22 stocks th

22、at went public, the stock was selling on average for 80 percent above the offering price within a month. Yet, this assistant professor looked at his performance record and found the $8,400 invested in 12 companies had grown to only $10,100, a return of only about 20 percent. (Commissions were neglig

23、ible.) Did he have bad luck, or should he have expected to do worse than the average initial-public-offering investor? Explain.這是贏者詛咒現(xiàn)象，22加進(jìn)行IPO的企業(yè)股票第一個(gè)月的平均上漲率為80%，但是有些企業(yè)上漲率高于80%有些企業(yè)則會遠(yuǎn)遠(yuǎn)低于80%，也就是說每只股票的折價(jià)程度不一。但是助理教授作為一個(gè)普通投資者沒有信息優(yōu)勢，他不了解哪些股票折價(jià)的程度高，哪些低，因此每次發(fā)行新股他都進(jìn)行申購，而且申購的量相同。由于有人擁有信心優(yōu)勢，他們了解哪些股票的折價(jià)程度更高，

24、哪些低，因此對于折價(jià)程度高的股票購買的人數(shù)會遠(yuǎn)遠(yuǎn)多于折價(jià)程度低的股票。所以對于助理教授這樣的普通投資者而言，折價(jià)程度高的股票很難中簽，或者只能買到少部分，而折價(jià)程度低的股票反而容易中簽，因此助理教授買到的股票往往是折價(jià)程度較低的股票，上漲空間不大，這樣他的收益率遠(yuǎn)低于行業(yè)的平均收益率也就不足為奇了。6. Margret Kimberly, CFO of Charles River Associates, is considering whether or not to refinance the two currently outstanding corporate bonds of the

25、firm. The first one is an 8-percent perpetual bond with a $1,000 face value with $75 million outstanding. The second one is a 9-percent perpetual bond with the same face value with $87.5 million outstanding. The call premiums for the two bonds are 8.5 percent and9.5 percent of the face value, respec

26、tively. The transaction costs of the refundings are $10 million and $12 million, respectively. The current interest rates for the two bonds are 7 percent and 7.25 percent, respectively.Which bond should Ms. Kimberly recommend be refinanced? What is the NPV of the refunding?債券回購行為的凈現(xiàn)值應(yīng)該等于債券回購的收益減去成本，其收益為債券現(xiàn)值與回購價(jià)格之差，因此有-5.66 million dollars0.808 million dollars因此，應(yīng)該回購第二種債券，其凈現(xiàn)值為$0.808million7. Redwood Timberland Corporation is a