FIN622 VU Current Midterm Fall 2012 Paper 9 December 2012

Total 27 question , 22 Mcqz , 5 descriptive.

Mcqs were mostly from past papers

Q—1           Marks — 3

Projects Beta Standard deviation
Security X 0.8 0.4
Security Y 2 0.3


  1. Which security is defensive and why?
  2. Whish security has greater unsystematic risk and why?
  3. Which security requires more risk premium and why?

Q—2         Why calculation of common stock is difficult than bonds?  Marks — 3

Q—3          Expected rate of return on market portfolio 14%

T-bills yield 6%

Expected return (investor) 10%

Calculate Beta of stock=?       Marks — 3

Q—4          Interest tax shields are valuable, why don’t all taxpaying firms borrow as much as possible. Marks — 5

Q—5       Marks — 5

Projects Initial investment PV of cash flows
W (50000) 65000
X (100000) 120000
Y (85000) 113000
Z (96000) 105000



  1. Calculate NPV.
  2. Rank projects according to NPV and calculate total NPV of selected projects.

Another Paper:

Corporate Finance (FIN622) Mid Term Paper Fall 2012 Virtual University
FIN622 Corporate Finance Mid Term paper on 08-12-2012

Total 27 Questions for 41 Marks. Time 60 Minutes There were 21 MCQs, all from past papers. In fact all the short questions were also from past papers. 1. What is the decision making criteria for NPV? Give reasons? (3 Marks) 2. How does the probability analysis evaluate the financial feasibility of a project? (3 Marks) 3. Why weighted average cost of capital (WACC) should be used as discount rate for Analyzing the financial viability of a project? (3 Marks) 4. Suppose we have two stocks i.e. stock A and stock B. Stock A has beta of 1.5 and stock B has a beta of 0.75.The expected rate of return on average stock is 13% and the risk free rate of return is 7%.By how much does the required rate on the riskier stock exceeds the required return on the less risky stock. (5 Marks) 5. Interest tax shields are valuable, why don’t all tax paying firms borrow as much as possible? (5 Marks