A. Multiple choices questions:

1)Expected dividends on a stock are 5 and current market price is 100. Given a constant and perpetual growth of 3%, what is the expected return rate?
a)The expected return rate is 5%
b)The expected return rate is 3%
c)The expected return rate is 8%

2)NPV and IRR valuation yield different results when:
a)The firm is leveraged
b)Investment opportunities are “perfect substitutes”
c)Expected inflation is very high

3)Firm A and B show the same unlevered Beta and marginal tax rate. If A has a higher leverage (B/E) this implies that:
a)A’s levered beta is greater than B
b)B’s levered beta is greater than A
c)A’s levered beta is equal to B.

4)In a world with taxes but zero bankruptcy costs, firm value is:
a)Positively correlated with leverage
b)Negatively correlated with leverage
c)Independent from leverage

5)The Venture Capital Method:
a)Requires very high discount rates
b)Assumes that the investor will get majority of the firm
c)None of the above

B. Open answer questions:

1)Alfa has a payout ratio (b) of 50%; Expected profits per share (E) of 10; expected return (r) of 10%; growth rate (g) of 6%. Assess Alfa share price assuming a dividend discount model with constant and perpetual growth

2)Firm X has an Ebit of $1.000, marginal tax rate of 40% and a cost of capital of 20%. Currently the firm financial structure is all-equity but the firm management is considering to lever the firm for $1.500 at 10% cost. Check whether levering the firm implies a growth in value.

A. Multiple choices questions: 1)Expected dividends on a stock a...