College of Administrative and Financial Sciences FIN 201 Term-II, 2020-2021 Assignment 1 Deadline: 01/03/2021 @ 23:59 Course Name:Corporate Finance Student’s Name: Course Code:FIN201 Student’s ID Number: Semester: II CRN: Academic Year: 1440/1441 H For Instructor’s Use only Instructor’s Name: Students’ Grade: Marks Obtained/5 Level of Marks: High/Middle/Low Instructions – PLEASE READ THEM CAREFULLY • The Assignment must be submitted on Blackboard (WORD format only) via allocated folder. • Assignments submitted through email will not be accepted. • Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page. • Students must mention question number clearly in their answer. • Late submission will NOT be accepted. • Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions. • All answered must be typed usingTimes New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism). • Submissions without this cover page will NOT be accepted. Assignment Questions Maximum Marks-05 Q1: How does Perpetual Tax Shield work for the firm? [1 Mark] Q2: Explain the concept of Financial Distress and Financial Slack.[1 Mark] Q3 A: Calculate the Cost of capital (Expected return on the assets) of a firm with following data. [1.5 Marks] Assets Value 100 Debt (D) 40 - - Equity (E) 60 Total Asset value 100 Firm Value 100 Expected Return on the debt (rdebt) = 8% Expected Return on the Equity (requity) = 16% Q3B: What would be the situation if the same firm issued an additional 5% debt and used the cash to repurchase 5 % of its equity? Calculate the new expected rate of return on equity (r equity), if debt holders are asking for 8.125% rdebt. [1.5 Marks]
Purchase answer to see full attachment