FIN 540 MIDTERM

Aug 9th, 2016
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Question 1 Which of the following statements about valuing a firm using the APV approach is most CORRECT? Answer The horizon value is calculated by discounting the free cash flows beyond the horizon date and any tax savings at the levered cost of equity. The horizon value is calculated by discounting the free cash flows beyond the horizon date and any tax savings at the cost of debt. The horizon value is calculated by discounting the expected earnings at the WACC. The horizon value is calculated by discounting the free cash flows beyond the horizon date and any tax savings at the WACC. The horizon value must always be more than 20 years in the future. 8 points Question 2 Operating leases often have terms that include Answer maintenance of the equipment by the lessor. full amortization over the life of the lease. very high penalties if the lease is cancelled. restrictions on how much the leased property can be used. much longer lease periods than for most financial

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FIN 540 MIDTERMQuestion 1Which of the following statements about valuing a firm using the APV approach is mostCORRECT?AnswerThe horizon value is calculated by discounting the free cash flows beyond the horizon date andany tax savings at the levered cost of equity.The horizon value is calculated by discounting the free cash flows beyond the horizon date andany tax savings at the cost of debt.The horizon value is calculated by discounting the expected earnings at the WACC.The horizon value is calculated by discounting the free cash flows beyond the horizon date andany tax savings at the WACC.The horizon value must always be more than 20 years in the future.8 pointsQuestion 2Operating leases often have terms that includeAnswermaintenance of the equipment by the lessor.full amortization over the life of the lease.very high penalties if the lease is cancelled.restrictions on how much the leased property can be used.much longer lease periods than for most financial leases.8 pointsQuestion 3From the lessee viewpoint, the riskiness of the cash flows, with the possible exception of theresidual value, is about the same as the riskiness of the lessee'sAnswerequity cash flows.capital budgeting project cash flows.debt cash flows.pension fund cash flows.sales.8 pointsQuestion 4Which of the following is generally NOT true and an advantage of going public?AnswerFacilitates stockholder diversification.Increases the liquidity of the firm's stock.Makes i

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