Gazdasági Ismeretek | Pénzügy » Corporate Finance

Source: http://www.doksinet 1 Ministry of education and science of Russian Federation Pskov State University Finance and Economics Faculty Syllabus Corporate Finance Recommended for Master Degree Pskov 2012 Source: http://www.doksinet 2 1. The goals and objectives of the course The goal of the course is to deepen students’ knowledge on advanced questions related on corporate finance, its practical application as well as empirical testing. The objectives of the course are: 1. To study the main theories related on corporate finance; 2. To get the practical skills in calculations in the frame of theoretical knowledge; 3. To study the main problems in corporate finance policy and receive experience in solving this problems; 4. To study international aspects of corporate finance; 5. To improve skills of presentations and discussions 2. Preliminary courses Corporate finance is based on knowledge gained within such courses as Microeconomics, Macroeconomics, Financial Analysis

studied on bachelor and master level and especially Corporate Finance studied on bachelor level. 3. Learning outcomes: The graduate should have the following general cultural competence: - acquiring a culture of thinking, ability to summarize, analyze, accept information, set objectives and find out ways of reaching it; - ability to analyze world outlook, social and personally important problems; - ability to use skills of harangue, discussion and dispute; - ability to use new knowledge applying up-to-date educational and information technologies; - ability to flexible adaptation to various situations and to show creativethinking approach, initiative and insistence in reaching the objectives of professional activity. The graduate should possess the following professional competences: Source: http://www.doksinet 3 - ability to synthesize and critically evaluate the results obtained by Russian and foreign researchers to identify promising areas of research; - ability to conduct

independent research in accordance with the program of the course; - ability to evaluate projects in view of the uncertainty factor; - ability to analyze and use various sources of information for the economic calculations; - ability to develop options for management decisions and justify their choice based on the criteria of socio-economic benefits. Upon completion of the course the student should: Know: 1. Main terms of the course; 2. Main theories of the course; 3. Main problems in the corporate finance in the modern economy Be Able to: 1. Use theoretical knowledge in practice (including using the terms); 2. Calculate key indicators in the sphere of corporate finance; 3. Discuss the problems and offer the ways their solving Posses: 1. professional skills received within the course 4. Объем дисциплины и виды учебной работы Total academic load - 4 ECTS. Types of activities Auditorium studies (total) Including: Lectures Practical classes, including:

Lessons in interactive forms Seminars Laboratorial classes Self – study (total) Including: Course papers Всего часов 72 18 54 72 30 Source: http://www.doksinet 4 Homework Intermediate assessment (exam or test) Total academic load hours / credits 42 1 144/4 5. The course contents 5.1 The themes’ contents № 1. Themes Corporations and corporate finance 2. The cost of capital and capital structure 3. Sources of long – term finance 4. Dividend policy The contents Corporation as a special form of running business. Different types of corporation and their advantages and disadvantages. State corporations and their specific role. Corporate structures in Russian and other countries. Corporate governs Corporate finance and their functions. Corporate objective and importance of its determination and flexibility (practical and theoretical reasons). The role of financial manager: a simple model of the interactions between the financial manager and capital /

financial markets. The flow of funds and financial intermediation. Agency theory Shareholders wealth and its maximization. Sources of capital: advantages and disadvantages. Calculating the cost of capital. WACC and its meaning and calculation Different concepts of weights calculation. Average and marginal cost of capital. The practical application of WACC The concept of an optimal capital structure. The traditional approach to capital structure. Miller and Modigliani – net income approach. Miller and Modigliani and market imperfection. Miller and personal taxation Gearing: its measurement and implication. Modern factors impact on the capital structure in different branches of economy: experience of Russian, European and American corporations. Global crisis and its impact on capital structures. Equity finance: advantages, disadvantages. Ordinary and preference shares: methods of issues. Shares valuation and shareholders requirements. The efficient market hypothesis Scrip issues, stock

splits, scrip dividends and share repurchases. Debt finance:advantages, disadvantages. Bonds, banks borrowings, syndicated loans, convertible bonds. Leasing International sources of debt finance. Dividend itself and dividend policy: importance, impact and informational effect. Dividend policy vs Investment policy Modern factors, impact on dividend policy. Dividends and shareholders’ wealth. Dividend irrelevance and dividend relevance: different concepts. Clientele effects Taxation and Source: http://www.doksinet 5 5 Value – based management 6 Portfolio theory and risk management 7 Mergers and acquisitions 8 International investment decisions dividend policy. Owner control (agency theory) The Gordon growth model. Dividend payout strategies Alternatives to cash dividends. The pervasiveness of the value approach. Three steps of value: mission statement, measuring shareholders value, creating shareholders value. Key elements of value creation in business: capital invested;

rate of return on capital; planning horizon; required rate of return. Actions for creating value Impact of value principles on corporate strategy. Value – creation metrics: cash flow, shareholders value analysis, economic profit, economic value added, total shareholder return, market value added. Valuation of corporation: net – asset value method (NAV); income – flow methods. The dividend valuation models. What is risk? Sensitive analyses. Scenario analysis Probability analysis. Interest and exchange rate risk Internal risk management. External risk management Future contracts. Options Swaps Combinations of investments. Portfolio expected return and standard deviation. Diversification Systematic risk The security market line (SML). Risk premiums across the world Calculating beta. Practical application of the CAPM M&A: main features and differences. Justifications for acquisitions: economic factors, synergy, economies of scale, entry to new markets, risk reduction, etc.)

Operating and financial synergy. Motives for M&A deals Stages of M&A deals. Valuation of the target company The financing of acquisitions. Protection strategies from unfriendly take – over. The reasons for foreign investments (strategic, economic). The evaluation of foreign investment decisions: methods of evaluating; evaluation at local level; evaluation at parent company level. Taxation and foreign investment Factors, impact on foreign investments: gearing; taxation; political risk; currency risk. 5.2 Distribution of the course’s activities № 1. 2. Themes Corporations and corporate finance The cost of capital and capital structure lectur es 2 4 Practi cal classe s 4 Semin ars 4 4 Self stud y 4 10 Total, hrs. 10 22 Source: http://www.doksinet 6 3. 4. 5. 6. 7. 8. Sources of long – term finance Dividend policy Value – based management Portfolio theory and risk management Mergers and acquisitions International investment decisions 2 2 2 2 2 2 2 4 4 4 6 4

4 4 4 6 10 8 10 10 10 10 18 18 20 20 18 18 6. Workshops № of the topics № 1. 1 2. 2 3 3 4 4 5 5 6 6 Contents Discussion the questions and problems: 1. Advantages and disadvantages of different corporate structures; 2. Selecting shareholder wealth maximization as the objective of the corporation. Including a consideration of profit or sale maximization as an alternative goal. 3. Discuss the ways in which shareholders of corporation can encourage its managers to act in a way which is consistent with the objective of maximization the shareholder wealth. Calculating the cost of capital for different described situations. Discussing the factors impact on the capital structure in the modern world. Discussion the questions and problems: 1. The factors which determine the market price of shares, bonds, etc. 2. The risks dealing with long – or short term of finance. 3. The risks dealing with equity finance 4. The risks dealing with debt finance 5. Current situation in

capital markets Calculating the dividends for different described situations. Discussion the questions and problems: 1. Advantages and disadvantages of different dividend payout strategies; 2. “Dividends should be timeless like diamonds” Why? 3. Dividend policy in different branches of economy 4. Russian and European special features of dividends policy. Calculating the value of corporations and shares for different described situations using different methods of valuation. Discussing the factors impact on business value in Russian and foreign corporations. Discussing the factors impact external and internal risks for corporation. Calculating the risks leverage for different described (hrs.) 4 8 6 8 8 8 Source: http://www.doksinet 7 7 8 7 8 situations. Discussing the real M&A deals. Evaluation the foreign investments in different described situations. Discussing the possibilities for foreign investments in Russia and other foreign countries. 6 6 7. Research

Students are required to fulfill the individual or group research in the following topics: 1. Agency theory in the modern world 2. State corporations in Russia and other countries 3. Corporate objectives determination 4. Gearing in corporations: operating and financial approach 5. Cost of corporate capital in different branches of economy 6. Capital structure of Russian corporations 7. Capital structure of international corporations 8. Capital structure and cycles of corporations 9. Equity finance in corporations 10. Debt finance in corporations 11. Dividend policy of Russian and European corporations 12. Dividend policy of Russian and American corporations 13. Key elements of value creation in corporations 14. Portfolio expected return in corporations 15. Risk premium calculation 16. Comparative analyses of mergers deals 17. Comparative analyses of acquisitions deals 18. Foreign investments regulation in Russia and European countries 19. Analyze of foreign investments in Russia 20.

Corporations and financial markets All the research should be based on statistics data and official data of real corporations. Students should compare the data of 3-5 corporations in each research. Comparison of Russian and foreign corporations is recommended 8. Literature recommended: а) Basic books: 1. Berk J, DeMarzo, P Corporate Finance, Pearson Education, Inc, 2007 Source: http://www.doksinet 8 2. Donald H, Chew, Jr The New Corporate Finance: Where Theory meets Practice 3. Glen Arnold Essentials of Corporate Financial Management 4. Watson D, Head A Corporate Finance: Principles and Practice b) Further readings 1. Устюжанина Е.В, Петров АГ, Садовничая АВ, Евсюков СГ Корпоративные финансы. – М: Дело, Академия народного хозяйства, 2008. – 672 с 2. Тарасевич Л.С, Гребенков ПИ Теория корпоративных финансов: Учебник для

вузов: гриф УМО РФ. – М: Высшее образование, 2008 – 237 с. 3. Григорьева Е.М, Перепечкина ЕГ Финансы корпорации: Учебное пособие для студентов: гриф УМО МО РФ. – М: Финансы и статистика, 2006. – 288 с c) Softwear d) data bases, informational systems, etc. 1. PskovSU library resources - http://libpskguru/indexphp?partition=3 2. Вестник Финансовой академии http://www.faru/university/publications/vestnik/ozhurnale/Pages/defaultaspx; http://www.vestnikfaru 3. Вестник Инжекона - http://engec.ru/vestnik 4. Вестник РЭА http://www.rearu/Mainaspx?page=ZHurnal Vestnik REHA 5. Вестник Томского государственного университета - http://vestnik.tsuru/ 6. Вестник УрФУ. Серия «экономика и управление» http://vestnik.usturu/ 7.

Вопросы экономики - http://vopreco.ru 8. Банковское дело - http://www.bankdeloru/arhiv/n0410/ 9. Деньги и кредит - http://www.cbrru 10. Известия Санкт-Петербургского университета экономики и финансов http://www.finecru/university/editions/magazine izvestia/ 11. Издательский дом «Финансы и кредит» - http://wwwfin-izdatru/journal/ Source: http://www.doksinet 9 15. Коммерсант - http://wwwkommersantru 16. Микроэкономика - http://meimceru/indexhtm 17. Мировая экономика и международные отношения http://www.imemoru 18. Научно-технические ведомости Санкт-Петербургского государственного политехнического университета http://ntv.spbsturu/author5htm 20. Экономический журнал ВШЭ

http://library.hseru/eresources/HSE economic journal/ 21. Экономические науки - http://ecsnru/pages/home 22. Экономическая политика (Российская академия народного хозяйства и государственной службы) - http://www.epaneru/ 23. Управление экономическими системами: электронный научный журнал - http://www.uecsru/ 24. Финансовый менеджмент - http://wwwfinmanru/annotations/ 25. wwwinvestrussiaru – сайты инвестиционных тем 26. wwwinrru – инвестиционные возможности России – прямые инвестиции в России 27. wwwallinvestrusru – все инвестиции России: база данных инвестиционных проектов 28. wwwinvestorovnet – публикации по инвестициям 29. wwwgaapru –

инвестиции (библиотека) 30. wwwexchange-handbookcouk – справочник по биржам мира 31. wwwrbcru – Российский бизнес-портал 32. Электронные библиотеки: wwwbiblioclubru, wwwelanbookcom, www.ibooksru 9. Technical support of the course: Classes with multimedia equipment are required for lectures and workshops. Practical classes should be held in computer classes. Access to the e-library resources including to the data-bases in the English language are required too. 10. Course requirements Most lectures and workshops (seminars) are recommended to hold in an interactive way. Basic educational technologies used within the course are: Source: http://www.doksinet 10 Debate / Discussion Carried out during the practical and lecture classes, students advance determined by the topic of discussion, the students themselves should prepare for the debate, in arguments to defend their positions. In preparing

students use lecture materials, as well as recommended sources of information (books, web-sites). This method allows to develop the skills of systematization and analyse information, communication skills, a logical representation of their views. Presentations Presentations are held in practical sessions, presentation topics related to lecture material and are a logical complement of information consideration during the lectures. Presentation topics are defined and distributed among the students in advance (at least 2 weeks, but the best option is the distribution of all the topics for the presentations in the course on the first training). Students should present the key results of their research within the course. Teachers should use presentations during the lecture classes. It will help students to understand new information. Access to the teacher’s presentations should be organized for students. It will help to minimize students’ time for making notes during lectures. Group work

Group work is carried out on seminars. The student should be prepared for group work; it requires knowledge of the lecture material, the information from the presentations, that shown in the previous practice sessions, the conclusions of the discussions held at the last practical training. For group work students are required software (Microsoft Excel, Microsoft Word, Microsoft PowerPoint etc.) The results of the group work are submitted to the general discussion. One of the ways of group work organization is case –study. Grade policy. The total evaluation combines several aspects: class participation – 5%, seminars active participation – 15%, research (group or individual) – 20%, exam – 60%. Source: http://www.doksinet 11 Examples of cases for discussion and group work in the workshops Case 1.Shareholders place corporate responsibility high on agenda The new regulations on voting policy would seem to be working. But what has given corporate governance an extra push is

the new attitude of the NAPF and the ABI, whose members control assets approaching £2000bn. Earlier this month, the NAPF began publishing recommendations on how shareholders should vote at AGMs. By taking on Vodafone, the biggest predator in the UK corporate jungle, it has sent a message that it means business. It drew some criticism that it recommended only an abstention on the resolution on Vodafones remuneration policy, rather than a thumbs down. But Vodafones reaction has shown that companies can no longer ignore their shareholders voice. Alistair Ross Goobey, chief executive of Hermes, the UK-based fund manager, and a longtime campaigner for shareholder rights, said: It is unusual that there has been such an open disagreement with the company and it might encourage companies to discuss things before they decide to go ahead with them. Vodafone has claimed it consulted with the top 20 shareholders before paying Chris Gent, its chief executive, a £5m cash bonus. But leading

shareholders have contested this view, one saying it was presented as a fait accompli, with views sought only after the money had been paid in April. Vodafone looks to be going further than previous companies facing an assault by shareholders. It is only five years since shareholder activism looked doomed, after British Gas saw off a motion critical of its executive remuneration structure. Its gesture may not be enough unless it goes further and scraps Mr Gents bonus, although few shareholders expect it to do so. Even if Vodafone does do this, Chris Baldry, of NAPFs voting service, says corporate governance will come of age only when it moves beyond the narrow confines of remuneration packages. Source: http://www.doksinet 12 But the case suggests that corporate governance and shareholder activists are moving swiftly from the margins to the mainstream of the investment businesshe protest over Vodafones executive pay scheme suggests activists are moving from the margins. Shareholders

have served notice that they are no longer prepared to squander their rights and responsibilities as owners of UK pic. By protesting against Vodafone AirTouches executive pay scheme, the National Association of Pension Funds (NAPF) and the Association of British Insurers (ABI) - whose members between them control nearly 50 per cent of the stock market - have taken an unprecedented step in standing up to Britains biggest company. The move comes in the wake of government regulations, introduced this month, which oblige pension funds to publish a statement on their voting policy, making it difficult for them to run away from their crucial stewardship role as owners. The stance taken by the shareholders promises to transform corporate governance, pushing it up the investment agenda. Corporate governance has been seen as a dreary, box-ticking exercise, with little relevance to the real world of running, and investing in, high-performing companies. Its exponents, shareholder activists, have

been typecast as marginal and eccentric. It does not seem unreasonable that shareholders should be actively involved in the key decisions of a company. They are, after all, the owners But, too often, this has not been the case. Companies are principally to blame: they do not always put important decisions to a vote of the shareholders. This year, fewer than 10 FTSE 100 companies have sought shareholder approval for their boardroom pay policies, according to the NAPF. Yet shareholders can also be blamed since, even when given the chance to vote, they have too often squandered an opportunity to exercise their rights as owners. The voting rate in AGMs is less than 50 per cent. Source: http://www.doksinet 13 The government has warned companies that they may have to allow voting on boardroom pay, and warned shareholders that they may have to vote if they do not raise the participation rate to more than 60 per cent. Case 2.Most companies flout code on corporate governance Most companies

are flouting the corporate governance code introduced last year to clean up the image of top executives riding roughshod over the wishes of their shareholders, according to a report published today by Pensions Investment Research Consultants (PIRC). The worst case of non-compliance is over directors pay. In a survey of 468 companies in the FTSE All Share Index, just nine - less than 2 per cent - put critical remuneration committee reports to the vote of shareholders at the annual general meetings. Almost half the companies have still not either imposed one-year contracts on executive directors, or adopted a policy of reducing contracts to this level. The findings are likely to dismay the government, which has repeatedly urged companies to abide by the code, published by the London Stock Exchange following the recommendations of the committee on corporate governance chaired by Sir Ronald Hampel, former chairman of ICI. Earlier this year, it called on companies to introduce voting on pay

committee reports and one-year contracts for executives in a Department of Trade and Industry document. PIRC found 27 per cent of companies were happy to disclose that they had considered putting pay committee reports to an AGM vote Most of the companies, 69 per cent, gave no indication either way. Stuart Bell, PIRC research director, said: If they are not disclosing the information, shareholders can have little confidence that they are following the code. He said it was disappointing that compliance on some pay issues is relatively low, explaining that some - notably the recommendation to have oneyear contracts - date back to the Greenbury Code of 1995, and so are not new requirements. Source: http://www.doksinet 14 Just 51 per cent of companies reported that their practice or policy was oneyear, rolling contracts for all directors. Of the 77 FTSE 100 companies surveyed, 53 per cent admitted that one-year contracts were not even an objective, as against two-fifths of the 227 FTSE

small cap companies in the survey. In other findings, PIRC reported that 77 per cent of companies staffed their remuneration committees with non-executives they themselves believed to be independent. The code says only independent non-executives should be appointed to pay committees. Mr Bell said that the code represents a base-line standard. He expected the best companies to go beyond it in providing better information to investors and improving their governance structure. This was important because it will contribute to competitiveness in the long term The Exam Exam is organized in a written form. Every student has 2 theoretical questions and a short case. Case contains information about real or fictive corporation and student should answer some questions suggested by teacher. Main idea of the case is possibility to estimate student’s competences in implementation theoretical knowledge in practice. Questions for case can be connected with one or several themes of the course. For

example, using balance sheet and information about incomes, costs and profits student should evaluate current capital structure of corporation and give some recommendations for its changing. Duration of the exam is 2 academic hours. The students’ papers should be evaluated within 2 working days. The results can be: a) The exam is passed; b) The exam is failed. Another attempt is possible; c) The exam is failed without another attempt. If the exam is passed it should be evaluated in ordinary way: excellent, good, satisfactory. Source: http://www.doksinet 15 The list of the questions for exam 1. Corporation as a special form of running business 2. Types of corporations 3. Agency problem in corporation and its modern ways of solving 4. Corporate finance and their functions 5. Financial policy of corporation: goals and objectives 6. Cost of capital: main principles of calculation 7. WACC: main principles of calculation and implementation in practice 8. Average and

marginal cost of capital 9. Capital structure: main factors 10. MM model without taxation 11. MM model with taxation 12. Miller model 13. Signal models and their practical application 14. Gearing: operating and financial approach 15. Equity finance: sources, advantages, risks 16. Debt finance: bonds 17. Debt finance: banks’ borrowings 18. Leasing as a source of finance 19. Dividends and dividend policy 20. Forms and sources of dividends payout 21. Factors, impact on dividend policy 22. Dividend relevance and irrelevance 23. Agency theory in dividend policy 24. Three steps of value 25. Key elements of value creation 26. Value principles and corporate strategy 27. Methods of corporation valuation 28. Sensitive analysis 29. Probability analysis Source: http://www.doksinet 16 30. Internal risk management 31. External risk management 32. Portfolio expected return 33. Practical application of CAPM. Calculating beta 34. M&A deals:

main features 35. Operating and financial synergy 36. Motives for M&A deals 37. DUE diligence 38. Stages of M&A deals 39. Valuation of target company 40. Financing the acquisitions 41. Evaluation of foreign investments 42. Factors, impact on foreign investments Test 1. Given the following possible corporate objectives, provide a rational argument explaining which of them should be the main goal of the financial manager: a) profit maximization; b) sales maximization; c) maximization of benefit to employees and the local community; d) maximization of shareholder wealth. 2. Which of the following will not lead to a reduction of agency problems experienced by shareholders? a) increased monitoring by shareholders; b) salary bonuses for management based on financial performance; c) the granting of share options to management; d) the use of restrictive covenants in bond deeds; the use of shorter contracts for management. Source:

http://www.doksinet 17 3. XTC is planning a 1 for 4 rights issue at a 20 per cent discount to the current price of £2.50 If an investor is to sell their rights per existing share how ma should they sell it for? а) 10 p b) 20p c) 30p d) 40p e) 50p 4. A conversion of existing capital reserves into ordinary shares, which are then diluted pro rata to existing shareholders. This statement best defines: a) scrip dividends; b) a rights issue; c) bonus bonds; d) scrip issues; e) stock splits? 5.Which one of the following statements best describes a cumulative preference share a) It has the right to be converted into ordinary shares at a future date. b) It entitles the shareholder to a share of residual profits. c) It carries forward the right to receive unpaid dividends to the next year. d) It entitles the shareholder to a fixed rate of dividend. e) It gives its holder voting rights at a companys annual general meeting. f) It has been suggested that the additional

finance be raised by means of a 1 for rights issue. The issue price will be at a 20 per cent discount to the current mar price of £2.75 and issue costs are expected to be £50 000. Calculate and explain the following: (i) the theoretical ex-rights price per share; (ii) the net cash raised; (iii) the value of the rights. (iv) Is the underwriting of rights issues an unnecessary expense? Source: http://www.doksinet 18 6 .Post-1984 reasons for the popularity of leasing include: a) leases can represent an off-balance-sheet source of finance; b) leasing is a source of finance if a company is short of liquidity; c) leasing allows small companies access to expensive assets; d) leasing allows a company to avoid obsolescence of some assets; e) the lesser may be able to borrow at a cheaper rate than the lessee; f) leases offer flexibility of payment and choice of equipment; g) year-end tax effects 7. Explain the meaning of the following terms and state the circumstances

under which their issue would be beneficial to lenders and borrowers: a) deep discount bonds; b) zero coupon bonds; c) warrants; d) convertible loan stock 8.Briefly explain what is meant by the following terms that refer to fixed interest debt securities: a) restrictive covenant; b) debenture sinking fund; c) redemption window. 9. The ordinary shares of Chock-stock pic are currently quoted at 200p per share the company has been paying a dividend of 30p for the past 10 years. The company planning to retain the next three years dividends to invest in a new project. To increased cash flows will begin in Year 4, allowing the company to pay dividend of 40p for the foreseeable future from that year onwards. What is Л increase in wealth for the shareholders? a) -24.4p; b) -14.2p; c) 5.8p; d) 10.2p; e) 17.6p Source: http://www.doksinet 19 10.Which of the following statements best sums up recent trends in corporate dividend payments? a) Nominal dividends have remained

constant or slightly increased. b) Companies have made large increases in real dividends. c) Companies have decreased payout ratios to stabilize nominal dividends. d) Nominal dividends have been decreased on the whole. e) Nominal dividends have been slightly increased to increase companies di cover. 11.Explain the following terms: a) residual theory of dividends; b) clientele effect; c) signalling properties of dividends; d) the bird-in-the-hand argument 12. A company incorporates increasing amounts of debt finance into its capital structure while leaving its operating risk unchanged. Assuming that a perfect capital market exists with no taxation, will the companys weighted average cost of capital: a) fall slowly; b) fall quickly; c) remain the same; d) fall to a minimum and then rise; rise steadily 13.Which of the following statements concerning capital structure is incorrect? a) Bankruptcy risk is ignored in Miller and Modiglianis first model. b) Debt

holders are not subject to the effects of financial risk. c) The traditional approach assumes that capital markets are perfect. d) Miller and Modiglianis second paper takes into account the effects of corporate taxation. e) Miller and Modiglianis first model argues that no optimal capital structure exists and supports this proposition with arbitrage theory. Source: http://www.doksinet 20 14.Paisley Brothers pic, a company producing loud paisley shirts, has a net operating income of£2000 and is faced with the following three options of how to structure its debt and equity: a) to take no debt and pay shareholders a return of nine per cent; b) borrow £5000 at three per cent and pay shareholders an increased return of 10 per cent; c) borrow £9000 at six per cent and pay a 13 per cent return to shareholders. Assuming no taxation and a 100 per cent payout ratio, determine which financing option maximises the market value of the company. 15. Weighted average cost of

capital cannot be used a) for new projects of the company, the risk of which is higher than the average assets of the company. b) as a minimum acceptable rate of return for new investment projects of the company. c) as a minimum acceptable rate of return for the company. g) as a rate (normal) return on capital, above which the companys market value has dropped. 16. Cost of Vulture Fund is 1 million y is, long-term debt - 400 thousand have E If the after-tax cost of debt is 12%, and the cost of capital of 15%, the weighted average cost of capital is equal to a) 13.5% b) 13.8% a) 27% d) It is impossible to determine the WACC without knowledge of the standard deviation of return of debt and equity. 17. All other things being equal, the higher income tax rate a) increases the weighted average cost of capital if the financial structure of the company uses debt and equity. b) reduce the weighted average cost of capital if the financial structure of the company uses debt and equity.

Source: http://www.doksinet 21 c) does not affect the weighted average cost of capital if the financial structure of the company only used borrowed funds. d) reduce the weighted average cost of capital, if the financial structure of the company only used their own funds. e) There is no right answer. 18. The company "Inter" in the capital structure are present preferred stock par value $ 1000 and 6%-governmental dividends. Securities listed on the market at a price of 650. E If a corporate profits 30%, the acquisition cost of this type of source of funding for the company would be . a) 9.2% b) 6.5% c) 6%. d) 3.6% e) There is no right answer. 19. Assume that a corporation finances its activities entirely by equity And its shares valued by the market based on the expectation of a 20% yield. If a company buys 50% of its shares and replace their debt by the same amount (annual percentage of the debt will be 8%), the expected return on the stock and after the refinancing will be

. a) 20%. b) 28%. c) 32%. g) 8%. e) There is no right answer. 20. If a company increases the proportion of debt, all other things being equal a) the required return on equity and the beta value will decrease. b) the required return on equity and the beta value increase. c) the required return on equity will increase and decrease the value of beta. d) the required return on equity will fall, and the beta value increases. Source: http://www.doksinet 22 21. Expected stock returns of the "Construction" 10% If funding comes only from equity capital, the opportunity cost of capital for investment by the "Construction" was . a) 8% b) 9% c) 10% d) 12% e) not enough data. 22. Which of these factors will reduce the weighted average cost of capital? a) The assignment of a lower investment grade. b) Increase the marginal corporate tax rate. c) The implementation of a new project, for which the risk is higher than the existing assets of the company. g) Increase the required

return on the stock. 23. In what form the company can pay dividends a) In the form of money or other property. b) In the form of equity. c) In the form of split or share repurchases. d) All answers are correct. 24. The company "Finish", this year unexpectedly received substantial profits in connection with the supply of equipment. In the future, this increase is not expected to return. As, according to the model Lintner, profit growth will affect the dividend policy? a) The company will increase the dividend due to increased profits. b) The Company will reduce the payment of dividends and reinvests her profits to a new promising project. c) The shareholders prefer a steady dividend growth, so with a very high reduction of profit in the future the company will not change its dividend policy. d) The Company will increase the standard rate of dividend payments. Source: http://www.doksinet 23 25. Assume that the company conducts a share split in the ratio 8:1 If the market

value of the company at 240.ie, the price of one share of the company after the split will be equal . a) 4.29 at is b) at 30.00 is c) at 240.00 is d) not enough data. 26. The authorized capital is 1,000,000,000 y is, the value of the shares at the 5 is, in the current year, the company posted a net profit of 450 million y. Management of the company is decided to purchase 50 million shares this year. How will the earnings per share (EPS) of the company as a result of foreclosure? a) EPS reduced by 2 times. b) EPS will decrease by 0.75 y is a) EPS will increase by 0.75 y is g) EPS unchanged. 27. According to the point of view of F Modigliani and M Miller regarding dividend policy . a) The company has to pay high dividends to maximize their value b) the dividend policy does not affect the increase in value of the company on a perfect capital market. c) if the tax on dividend income is higher than the income growth of the stock price, the company has to reduce dividend payments. d) if the

company increases dividends, they just have to buy the shares for that amount. e) There is no right answer. 28. Earnings per share (EPS) measures a) the level of dividends actually paid on common shares. b) set the level of dividends on preferred stock. c) the maximum level of dividends on common shares. d) set the level of dividends on common shares. Source: http://www.doksinet 24 29. If the company follows the principle of residual dividend, then a) shareholders receive the same amount of dividend per share each year. b) The company prefers to issue new shares to fi ¬ financing of projects, and the current profit spent on dividends. c) the holders of ordinary shares will receive dividends, provided that the net profit higher investment this year. d) The Company seeks to keep the maximum share of the profits to pay dividends on preferred and ordinary dividends. d) there is no right answer. 30. If a company has excess cash and the companys management believes its stock is

undervalued by market participants, then this company can be considered as a candidate for the . a) the purchase of shares. b) a share split. c) the payment of the regular dividend. d) payment of the dividend in shares. e) There is no right answer. 31. According to the theory of the "bird in the hand" M Gordon and John Lintner in respect of the dividend policy . a) investors alike prefer capital gains and dividends. b) an increase in dividend payments will decrease in value of the corporation. c) the company can increase its value if it establishes a high dividend yield. d) Investors prefer more capital gains than dividend growth. e) There is no right answer. 32. The company may resort to crushing shares in connection with a) the need to attract more investors and increase their demand for shares. b) the need to increase the number of shares from a third-party carriers. c) the need to increase the number of shares outstanding d) All answers are correct. Source:

http://www.doksinet 25 33. The market price of the company "Snowdrop", engaged in the cultivation and sale of flowers, is 120 cu Net profit earned in the current year amounted to 380 million USD Shareholders meeting decided to hold a share split in the ratio 3:1. The assets, earnings and the aggregate value of the company remains the same. How will the performance EPS (earnings per share) and DPS (dividend per share) due to fragmentation? a) EPS and DPS will decrease by 3 times. b) EPS and DPS will increase by 3 times. a) EPS will increase by 3 times, a DPS drops 3 times. g) EPS drops 3 times, a DPS increase by 3 times. 34. The theory of indifference regarding the dividend policy implies that a) The tax rate increases at the same rate as inflation. b) the investor is indifferent at what point will be paid ¬ HN dividends. c) investors care they receive dividends in shares, in cash or in the form of capital gains. d) For investors there is no difference between the

repurchase of shares and cash dividends. e) There is no right answer 35. Highlight one of the following arguments, which may be the motive for the commission of a reverse split. a) reduction of the share price in order to ensure its liquidity. b) reduction of the nominal value of shares. c) Extrusion of small shareholders. d) increase the transaction costs of the shareholders. d) there is no right answer. 36. Which of the following facts is not a prerequisite Lintner model? a) The Company adheres to the established long-term planned dividend payout ratio . b) managers pay more attention to the relative change in dividends than their absolute level. Source: http://www.doksinet 26 c) Change of the dividends is a result of changes dolgovremen ¬ GOVERNMENTAL profit. d) Managers reluctant to change dividends if image do the probability of return to their former level. 37. What position in the debate about the policy of dividend payments followed Miller and Modigliani? a) The increase

leads to increased shareholder value. b) increase leads to a decrease in value. c) reduction does not affect the value of the company. d) reduction leads to a decrease in value. 38. According to the policy standard payments company a) annually pays the same (in absolute terms) the amount of dividends b) annually pays the dividend is the same percentage of the net profit. c) increase the amount of dividends with a constant growth rate. d) There is no right answer. 39. According to the dividend policy premiums the company pays more dividends . a) for preferred shares. b) to ordinary shares. c) in the case of excess of normal (planned) damage profits. d) All answers are correct. 40. The payment of dividends in order to reduce costs for monitoring excess cash flow is explained in terms of the model . a) signal. b) the agent. c) transaction costs. d) There is no right answer. 51. The rate of dividend yield is defined as a) the ratio of the dividend to the market price of common stock. b)

the ratio of dividend to the nominal value of an ordinary share. Source: http://www.doksinet 27 c) the share of net profit, aimed at paying dividends ¬ Dov on ordinary shares. d) the ratio of the additional dividends to market ¬ night price of common stock. e) There is no right answer. 52. Which of the following factors, mergers and acquisitions are theoretically controversial? a) Diversification of productive activities. b) Purchase of scarce resources and factors of production. c) the increase in the value of the company for shareholders. d) The synergistic effect. e) There is no right answer. 53. As a criterion for the success of the operation of merger / acquisition projects usually considered: 1) the increase of the market share, and 2) the reduction of production costs, and 3) increase in the value of the company. Choose the correct answer: a) 1. b) 2. a) 3. d) 2, 3. d) 1, 2, 3. 54. In assessing the synergistic effects of the company, formed in a merger or acquisition, you

must use the discount rate . a) WACC absorbing company in case of a takeover or WACC combined firm in the event of a merger. b) WACC target company. a) WACC combined company in all cases. d) the lesser of the WACC of companies involved in the transaction. e) There is no right answer. 55. Select one of the following statements is incorrect a) Payment of the voting shares may reduce control over the merged company. Source: http://www.doksinet 28 b) If you pay in shares in case of a negative net present value of the absorption loss will be distributed to the shareholders of the two companies. a) Companies whose shares are highly overrated, prefer to pay absorption shares and not in cash. d) If paying stocks premium is less than if you pay cash. 56. Acquisitions and mergers of companies with dissimilar production called a) horizontal mergers. b) vertical mergers. c) the conglomerate merger. d) outsourcing. e) There is no right answer. 57. Financial Synergy a) leads to an increase in

value of the company, if the union is the only motive for diversification b) is more likely to occur if a significant amount of absorbing surplus funds c) includes a premium for control. d) All answers are correct. 58. In determining the premium for control Valuation is based on the assumption of optimal control. In the calculation does not include a) The economy of the optimization of the current capital structure. b) an increase in revenues from existing projects and benefits of termination of the loss-making activities. c) the tax shield, formed as a result of debt after the merger. d) payment by shareholders of unused funds. 59. Real option is preferred in the evaluation of synergistic effects, if a) synergistic effects manifest themselves in the form of cost reductions ¬. b) after the transaction, participants will not be possible to significantly alter the decision. a) cash flows are well predicted. d) the merger will give the company the opportunity to enter a new market.

Source: http://www.doksinet 29 e) There is no right answer. 60. The potential benefits of geographic diversification is a) economies of scale associated with the presence of unique intangible assets, the transfer of which is not possible through the market, and is only possible in a single corporate structure that allows the company to obtain the maximum rent from their use. b) increase the operational flexibility of the company, expressed, on the one hand, to improve the efficiency of management costs, and the other - to increase the effectiveness of pricing policy in a market uncertainty. c) expansion of opportunities to optimize the tax burden and other costs associated with the institutional environment in which we operate. d) All answers are correct. 61. Behavioral Theory of the wave of mergers and acquisitions fail to stand out as a factor in enhancing mergers . a) The rise in the stock market. b) a high dispersion relations "book / market value" on the companies. c)

that the company has a large amount of free cash d) the desire to take advantage of market imperfections managers who underestimates and overestimates some other action. e) There is no right answer. 62. To operating synergies not apply a) reduce costs per unit of output. b) an increase in revenues from the sale of the combined company c) the use of the surplus. d) higher growth in a new or existing market e) There is no right answer. 63. The merger of two car companies is an example: a) a horizontal merger b) a vertical merger c) the conglomerate merger Source: http://www.doksinet 30 d) There is no right answer. 64. Exchange of shares in mergers between two companies a) allows companies to use absorbent revalued its shares. b) may be less favorable than financing through debt, if the company has a high potential leverage. c) leads to higher shares of the absorbing company. d) is more advantageous to defer tax payments. e) All answers are correct 65. A company plans to absorb a

company B If company A does "cash" takeover offer, the a) A management company is optimistic about its value after the merger. b) the management company A pessimistic about their value after the merger. c) A management company set up a cost-neutral regarding the merger. d) There is no right answer. 66. Select one of the following is incorrect a) Diversification of the merger reduces the unsystematic risk, b) Diversification of the merger reduces systemic risk. c) the holder of the shares he can diversify risk by creating a portfolio of stocks. d) All the statements are true. 67. The potential profit from the sector diversification is a) more efficient allocation of resources as a result of the internal capital market, can eliminate the problem of under-investment, b) optimization of the tax burden associated with the possibility units with a loss for the period, generating unit positive cash flows, c) economies of scale, coupled with the ability to use similar key resources

inherent companies with adjacent industrial diversification, d) All answers are correct. The syllabus for the course “Corporate Finance” is developed by M. Nikolaev and V. Gusarova