FM E Business finance

A risk-free rate of 4 percent, a market return of 9 percent and a beta of 1.2. What is the cost of equity using CAPM?

• 1 10%
• 2 9%
• 3 13.8%
• 4 6%

The last dividend is $0.50, growth is 4 percent and the cost of equity is 10 percent. What is the share price using the dividend valuation model?

• 1 $8.67
• 2 $5.20
• 3 $5.00
• 4 $8.33

Equity is 60 percent of the finance at a cost of 10 percent, and debt is 40 percent at an after-tax cost of 5 percent. What is the WACC?

• 1 8%
• 2 7.5%
• 3 6%
• 4 15%

Irredeemable debt pays 6 percent interest on $100 nominal and trades at $80. The tax rate is 25 percent. What is the after-tax cost?

• 1 7.5%
• 2 6%
• 3 5.625%
• 4 4.5%

Why is debt usually cheaper than equity?

• 1 It is paid last
• 2 It has no interest
• 3 It ranks higher for repayment and interest is normally tax deductible
• 4 It has no risk

Which of these is prohibited in Islamic finance?

• 1 Profit sharing
• 2 Trade credit
• 3 Riba (interest)
• 4 Leasing

Which Islamic finance instrument is a form of lease finance?

• 1 Mudaraba
• 2 Murabaha
• 3 Ijara
• 4 Sukuk

Which Islamic finance instrument is a debt-like security backed by assets?

• 1 Ijara
• 2 Sukuk
• 3 Musharaka
• 4 Mudaraba

According to Modigliani and Miller with tax, what happens to company value as gearing rises?

• 1 It rises because of the tax shield on debt
• 2 It stays the same
• 3 It is not affected by tax
• 4 It falls

What does beta measure?

• 1 The company's dividend
• 2 The company's gearing
• 3 A share's sensitivity to market movements
• 4 The company's profit