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BA 4106 (Advanced Corporate Finance) Midterm Exam Q & S 2024.

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BA 4106 (Advanced Corporate Finance) Midterm Exam Q & S 2024.BA 4106 (Advanced Corporate Finance) Midterm Exam Q & S 2024.BA 4106 (Advanced Corporate Finance) Midterm Exam Q & S 2024.

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  • October 31, 2024
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  • 2024/2025
  • Exam (elaborations)
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BA 4106




Advanced Corporate Finance




MIDTERM EXAM
Q&S




©2024/2025

,1. Which of the following best defines the Modigliani-Miller
theorem concerning capital structure irrelevance?
- A. It suggests that in a world with no taxes or bankruptcy costs,
leverage does not affect the firm value.
- B. It states that high leverage always increases firm value.
- C. It proposes that only debt increases firm value.
- D. It implies stock pricing is irrelevant to capital structure.


Answer: A.
Rationale: Modigliani-Miller theorem argues that in perfect
markets without taxes or bankruptcy costs, the capital structure
doesn't impact the overall value of the firm.


2. A firm's weighted average cost of capital (WACC) is critically
important for which of the following reasons?
- A. It determines the firm's tax liability.
- B. It sets the minimum return required for capital budgeting
projects.
- C. It is used to assess operational effectiveness.
- D. It dictates the firm's cash flow strategies.

©2024/2025

, Answer: B.
Rationale: WACC determines the minimum average return
required for a firm to satisfy its owners and creditors, influencing
investment decisions.


3. Which financial strategy focuses on using derivatives to manage
interest rate risks?
- A. Asset management
- B. Capital budgeting
- C. Hedging
- D. Dividend policy


Answer: C.
Rationale: Hedging involves using financial instruments like
derivatives to mitigate risks associated with fluctuations in interest
rates.


### Fill-in-the-Blank Questions


4. In the context of Real Options Analysis, the term _____ refers
to the flexibility to decide on delays in the investment until
additional information is available.


©2024/2025

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