Question 16 Which of the following(s) is (are) correct for IPO underpricing? 1. 'Winner's Curse' is one of the proposed arguments to explain the underpricing. II. On average, Underpricing can be seen in all industries and IPO sizes. III. Without underpricing, companies could raise more funding. O Only I and II Only II and III O Only I and III O I, II and III 0 Only! Question 15 Cost of debt can be approximated by O maturity O coupon rate O inflation rate O yield to maturity O market risk premium Question 14 points Conglomerate Inc. has two divisions (e, two lines of business). First division manufactures and sells home appliances and second division sells healthcare products. Two divisions have different weights and risk profiles where first division holds more risk. What is your advice to management for evaluating divisional projects? O follow a subjective approach to determine the cost of capital O allocate funds proportional to division weights allocate funds to the highest NPV project use weight adjusted WACC O fund projects only belonging to Division A Question 11 Which one of the followings is incorrect regarding to cost of equity: O On average, it is higher than cost of debt. It moves in the same direction with tax rates. O It is affected by return on market portfolio. For a dividend paying company, it is sensitive to growth expectations for future dividends. O It is highly dependent on risk level of the firm and growth rate