1. A firm has a debt-equity ratio of 4. The market value of the firms debt and equity is 5m. What is the value of the firms debt?

A: 4.0m B: 3.8m C: 4.5m D: 2.6m

2. A firm has a debt-equity ratio of 4. The cost of debt capital is 8% and the cost of equity capital is 12%. What is the weighted average cost of capital for the firm (WACC)?

A: 10.1% B: 8.8% C: 9.5% D: 9.2%

3. Suppose Modigliani-Miller irrelevance of borrowing holds, and assume the firm has a weighted average cost of capital of 7%. If the debt-equity ratio is 2 and the cost of debt capital is 5%, what is the cost of equity capital?

A: 12% B: 10% C: 11% D: 9%

4. Data about the earnings flow of a firm are given in the table below. What is the value per share of the firm?

Expected earnings next year	1m
Payout policy	100% of earnings is distributed to the shareholders every year
Expected earnings growth	0
Debt-equity ratio	0
Weighted average cost of capital	7%
Number of shares	15m

A: 1.62 B: 95p C: 81p D: 1.56

5. Use the data given in question 14. What is the dividend per share of the firm?

A: 5.1p B: 2.5p C: 3.9p D: 6.7p

6. Use the data given in question 14. Suppose the firm changes its payout policy to 70%, such that 30% is reinvested in the firm, earnings a return equal to 7%. What is next years expected dividend per share?

A: 4.7p

B: 5.2p

C: 3.1p

D: 2.6p

7. Consider the payout policy given in question 16. What is the dividend and earnings growth for the firm?

A: 0.5% B: 3.6% C: 2.1% D: 4.6%

8. The data in the table shows the earnings data as well as data on the coupon and capital payments on the firms debt. The corporate and investor tax rate is zero. What is the debt-equity ratio of the firm?

Earnings before interest payments and depreciation	15m
Earnings growth	0
Face value debt	100m
Maturity data (at which the face value is repaid)	10 years
Annual coupon rate	5%
Yield to maturity debt	5%
Weighted average cost of capital	8%

A: 4.20 B: 2.36 C: 1.14 D: 3.10

9. A firm has annual dividend yield 3.5% and expected growth in dividends of 2% per year. You should assume the growth in dividends is sustainable for the foreseeable future. What is the firms cost of capital?

A: 8.2% B: 5.5% C: 7.1% D: 10.5%

10. Suppose the firms weighted average cost of capital is 12%, the cost of debt capital is 7%, and the cost of equity capital is 15%. What is the debt-equity ratio of the firm?

A: 1.5 B: 4.8 C: 0.6 D: 2.3