Chapter 7 Questions

Sample Answer

Question 6

Question 6
a	class A stock	Class A share price	Class B stock	Class B share price	Value of Equity
	50,000	100	100,000	90	14000000

b	Value of debt	Value of equity	Debt ratio
	5,000,000	14,000,000	0.263157895

Question 11

Question 11

Expected Market Return by using SML of CAPM = Risk Free Rate + Market Risk Premium (Beta)
Risk free rate	Riskless Rate	Beta	Expected Market Return
7%	6.50%	1.1	14.1500%

Expected return = risk free rate + market risk premium (beta) + expected value of size factor(coefficient for size effect) + book to market factor (coefficient for book to market effect)
Risk Free Rate	Riskless rate	Beta	Expcted value size factor	Coeeficient for size effect		Book to market Factor	Coefficent for book market effect
7%	6.50%	1.1	5%	0.7	4%	-0.3	16.45%

Question 12

Question 12
Outstanding shares	Share Price	Value of shares at offering Price
50,000,000	$ 22.00	$ 1,100,000,000.00

Outstanding shares	Stock market price	Value of shares at market price
50,000,000	$ 40.00	$ 2,000,000,000.00

	Value of shares at market price	Value of shares at offering Price
	$2,000,000,000.00	$1,100,000,000.00	$900,000,000.00

References

Damodaran, A. (2010). Applied corporate finance. John Wiley & Sons.

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Question

Week 6 Chapter 7 Questions

Select three formula-driven-problems from Chapter 7 that you wish to showcase and prepare a Microsoft Excel document showing the Excel formulas used to prepare the solution for those problems.

Chapter 7 Questions

REMINDER: Part of the grade that you receive on your problems is the utilization of Formulas. Therefore, do not pick problems that only require a narrative!

Textbook:

Damodaran, A. (2010). Applied corporate finance. John Wiley & Sons.

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