CPA FIN - Finance Exam
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Total 80 questions
Question #6 (Topic: )
Gobi Co has irredeemable 4% loan notes in issue with a nominal value of $20m. The
current market value of the loan notes is $10 million and the tax rate is 25%. The equity
shares of Gobi Co have a total marketcapitalizationof $30 million. The companys weighted
average cost of capital is 10%.
What is the cost of equity for Gobi Co?
current market value of the loan notes is $10 million and the tax rate is 25%. The equity
shares of Gobi Co have a total marketcapitalizationof $30 million. The companys weighted
average cost of capital is 10%.
What is the cost of equity for Gobi Co?
A. 10.7%
B. 11.3%
C. 12.3%
D. 12.5%
Answer: B
Question #7 (Topic: )
Napa Co has 100 million $025 ordinary shares in issue with a current market value of
$120 per share. The cost of ordinary shares is estimated at 12%. The company also has
$100 million 6% irredeemable loan notes in issue that are currently quoted at $60 per $100
nominal value. The tax rate is 20%.
What is the weighted average cost of capital for Napa Co?
$120 per share. The cost of ordinary shares is estimated at 12%. The company also has
$100 million 6% irredeemable loan notes in issue that are currently quoted at $60 per $100
nominal value. The tax rate is 20%.
What is the weighted average cost of capital for Napa Co?
A. 11·3%
B. 10·6%
C. 8·8%
D. 7·2%
Answer: B
Question #8 (Topic: )
A company sells 2,000,000 units of a particular product evenly throughout the year. The
purchase price of the product is $22 per unit. The cost of placing an order is $20, the cost
of holding one unit of stock for a year is $5 and the economic order quantity is 4,000 units.
What is the total annual cost of trading in this product?
purchase price of the product is $22 per unit. The cost of placing an order is $20, the cost
of holding one unit of stock for a year is $5 and the economic order quantity is 4,000 units.
What is the total annual cost of trading in this product?
A. $44,230,000
B. $44,030,000
C. $44,020,000
D. $44,010,000
Answer: C
Question #9 (Topic: )
It has been claimed that the weighted average cost of capital (WACC) should only be used
to evaluate investment decisions, involving discounted cash flow calculations, where:
1.Theproposed project does not alter the business risk profile of the business.
2.TheWACC reflects the long-term capital structure of the business.
Which ONE of the following combinations (true/false) is correct?
to evaluate investment decisions, involving discounted cash flow calculations, where:
1.Theproposed project does not alter the business risk profile of the business.
2.TheWACC reflects the long-term capital structure of the business.
Which ONE of the following combinations (true/false) is correct?
A. Statement 1 = True, Statement 2 = True
B. Statement 1 = True, Statement 2 = False
C. Statement 1 = False, Statement 2 = True
D. Statement 1 = False, Statement 2 = False
Answer: A
Question #10 (Topic: )
Kubilai Co, a listed company, is considering issuing additional equity capital. To ensure that
all the new equity shares are sold, Kubilai Co wants to gain assurance that any shares not
bought by the general public will be subscribed.
What term correctly describes a firm which agrees to subscribe for the equity shares which
are not taken up?
all the new equity shares are sold, Kubilai Co wants to gain assurance that any shares not
bought by the general public will be subscribed.
What term correctly describes a firm which agrees to subscribe for the equity shares which
are not taken up?
A. A sponsoring member firm
B. An issuing house
C. An underwriter
D. An intermediary
Answer: C
