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    This document contains two questions from an Advance Corporate Finance exam. Question 1 asks to define cost of preference share capital, differentiate between financial and business risk, state the equation for cost of redeemable debt, define the dividend valuation model, and explain non-diversifiable risk. Question 2 provides details of a company's debentures and asks to calculate the market price, and how the price would change given different interest rates or maturity periods. It also asks if the debentures would be purchased at Rs. 90 given the details in part c.

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    This document contains two questions from an Advance Corporate Finance exam. Question 1 asks to define cost of preference share capital, differentiate between financial and business risk, state the equation for cost of redeemable debt, define the dividend valuation model, and explain non-diversifiable risk. Question 2 provides details of a company's debentures and asks to calculate the market price, and how the price would change given different interest rates or maturity periods. It also asks if the debentures would be purchased at Rs. 90 given the details in part c.

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    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
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    10 views1 page

    Quiz

    Uploaded by

    missreshi
    This document contains two questions from an Advance Corporate Finance exam. Question 1 asks to define cost of preference share capital, differentiate between financial and business risk, state the equation for cost of redeemable debt, define the dividend valuation model, and explain non-diversifiable risk. Question 2 provides details of a company's debentures and asks to calculate the market price, and how the price would change given different interest rates or maturity periods. It also asks if the debentures would be purchased at Rs. 90 given the details in part c.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
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    of 1

    COMSATS INSTITUTE OF INFORMATION TECHNOLOGY, ISLAMABAD

    ADVANCE CORPORATE FINANCE

    10 Marks

    Question # 1 (5)

    a) Define Cost of preference share capital?


    b) What is the difference between Financial Risk and business risk?
    c) If the repayment of debt is in installments what would be the equation for finding
    cost of redeemable debt?
    d) Define dividend valuation model?
    e) What is non diversifiable risk?

    Question # 2
    (5)

    A company’s debentures of the face value of RS 100 bear an 8% interest coupon rate.
    Debentures of this type currently yield 10%intrest.

    a) What is the market price of the company?


    b) What would happen to the market price of debentures if the interest rises to (i)
    16%, and (ii) 12%?
    c) What would be the market price of the debentures in situation if it is assumed that
    debentures were originally having a 15% maturity period and the maturity period
    is 4 years away from now?
    d) Would you pay Rs 90 to purchase debentures specified in situation (c)

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