Corporate Finance Final Exam Roll # ___________ BBA Program, IBA, DU, 2013 (Provide your answers on the Question Paper) Indicate T (True) or F (False): 1. Capital leases are an alternate source of financing. 2. Term financing is short-term debt, typically used to purchase short-term assets. 3. In a sale and leaseback arrangement, the seller is the lessee and the buyer is the lessor. 4. In an IPO, Private Placement price is higher than Offer Price. 5. The discount rate used to evaluate lease financing versus debt financing is the firm's cost of capital, the only difference is that the cost of capital is adjusted after-tax for leases. 6. Term loan agreements typically contain a prepayment penalty clause, which banks charge if a debtor pays back earlier than scheduled. 7. Empirically, the shareholders of selling companies benefit more in a merger than the shareholders of the buying companies. 8. A tender offer is a public offer by one firm to directly buy from the shareholders, the shares of another firm. 9. Valuations under FCFF and FCFE methods will yield the same result if the Debt:Equity ratio remains constant over the years. 10. Under FCFE, Interest Expense is not subtracted in the Income Statement, since Repayment is subtracted from Cash Flow Statement. Multiple Choice Questions (MCQ): 11. Under Book-Building method of IPO Listing, the price of the shares is: A) equal to the Indicative Price. B) equal to the Offer Price. C) between the Indicative Price (inclusive) and the Offer Price (inclusive). D) equal to the price realized through subscription, regardless of if it is less than the Indicative Price or more than the Offer Price. E) All of these. F) None of these. 12. Which one of the following is right? A) P/E = { (1 – Retention Ratio) x (1 + g) } / (r – g) B) P/E = { EPS1 x (1 – Retention Ratio) x (1 + g) } / (r – g) C) P/E = ( 1 – Retention Ratio) / { (1 + g)