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时间:2020-03-04
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1、TheUniversityofHongKongSchoolofEconomicsandFinanceFINA0304/FINA2312—AdvancedCorporateFinanceExtraPracticeQuestions1.Supposethatafirmhasassetsinplacewhichgenerate$100millioningoodstateand$50millioninbadstate,whereeitherstateisequallylikelytooccur.Thefirmhasou
2、tstandingdebtwithpromisedpaymentsof$50million.Aninvestmentproject,whichrequires$10millionandyieldsariskycashflowof$11millioninthegoodstateandzerointhebadstate,isnowavailabletothefirm.Supposethattheexistingdebthasnocovenantrestrictingthefirmtoissueseniordebtt
3、oraiseadditionalfunds.Assumezerorisklessrateofinterestanduniversalriskneutrality.(a)Ifthefirmhastoissueequitytoexistingshareholders,wouldthefirmoptimallychoosetoundertaketheprojectgiventhatitsobjectiveistomaximizeshareholders’wealth?Why?(b)Ifthefirmhastoissu
4、edebtjuniorthantheexistingdebt,wouldthefirmoptimallychoosetoundertaketheprojectgiventhatitsobjectiveistomaximizeshareholders’wealth?Why?(c)Ifthefirmhastoissuedebtwiththesameseniorityastheexistingdebt,wouldthefirmoptimallychoosetoundertaketheprojectgiventhati
5、tsobjectiveistomaximizeshareholders’wealth?Why?(d)Ifthefirmhastoissuedebtseniorthantheexistingdebt,wouldthefirmoptimallychoosetoundertaketheprojectgiventhatitsobjectiveistomaximizeshareholders’wealth?Why?2.Considerafirmthatinvestorsbelieveisoneoftwotypes,goo
6、dorbad,withequalprobability.Informationisasymmetricinthatmanagersofthefirmknowwithcertaintythetruetypeofthefirm.Thefirmhasaccesstoaprojectwhichrequiresanimmediateinvestmentof$1million.Theobjectiveofthemanagersistomaximizetheintrinsicvalueoftheexistingshareho
7、lders’claims.thecashflowdistributionofthefirm,contingentonitsinvestmentdecisionandtype,arepresentedbelow:GoodBadAsset-in-place$1.25million$1millionProject$1.2million$1.1millionSupposethatallagentsareriskneutral(i.e.,theyonlycareaboutexpectedvalue)andtheriskl
8、essrateofinterestis5%.Ifthefirmislimitedtoequityfinancing,shoulditgoaheadwiththeproject?Why?
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