Mock Exams 2021 PDF

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Question 33 Not yet saved Marked out of 4.00

a) In the Miller and Modigliani models we discussed in class, we said that one early iteration of the model suggested that there were unlimited benefits associated with use of debt in the capital structure. What does this suggest the ideal capital structure should be? Why is this? Describe in a maximum of 2 sentences. (4 marks) 

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Question 34 Not yet saved Marked out of 3.00

b) The value of Smith Limited is $100m and the company is unlevered. They decide to borrow $50m worth of debt for three years (it won’t be renewed). The tax rate is 30% and the interest rate is 10%. Calculate the value of the levered firm. (3 marks) Answer: $

Million (Keep 2 decimal places)

Question 35 Not yet saved Marked out of 4.00

c) In a maximum of two sentences, describe why debt may reduce the agency problem observed by some firms. (4 Marks)

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Question 36 Not yet saved Marked out of 4.00

d) Maximillion Limited has noticed that its Cash Conversion Cycle (CCC) is a lot higher than its competitors and is looking to reduce it. Circle whether the following account balances should be increased or decreased to reduce the CCC (4 Marks) Accounts PayableAnswer: Accounts Receivable Inventory Credit Sales...