QUESTION: 1
The shares of Denzvent Co and Plym Co have beta values of 0-5 and 1-2 respectively. The expected rate of
return for Denivent Co investors is 9% and the expected return to the market is 12%. Using the Capital Asset
Pricing Model, what is the expected rate of return for investors in Plym Co?

A. 7-2%
B. 10-8%
C. 13-2%
D. 21 -6%

Answer(s): C
QUESTION: 2
Vixen plc has warrants in issue that can be used to subscribe for ordinary shares in the company on a one-for-
one basis in six months' time at an exercise price of $4.50. The warrants are currently quoted at $1.20 and the
current share price is $5.40.
What are the warrant conversion premium and the intrinsic value of the warrant? Conversion premiumlntrinsic
value

A. $1-20$0-90
B. $0-s0$0-90
C. $1-20$1-50
D. $0-:s0$1-so

Answer(s): B
QUESTION: 3
Etamin Co has equity shares in issue with a nominal value of $10m and a total market value of $18m. It also has
irredeemable loan notes in issue with a nominal value of $10m and a total market value of $12m. Interest is
payable on the loan notes at the coupon rate of 6% per year and the tax rate is 20%. The weighted average cost
of capital of Etamin Co is 10%.
What is the company's cost of equity?

A. 12-7%
B. 13-5%
C. 14-0%
D. 16-0%

Answer(s): C
QUESTION: 4
It has been claimed that the weighted average cost of capital (WACC) should only be used to evaluate
investment decisions, involving discounted cash flow calculations, where:

1). The proposed project does not alter the business risk profile of the business.
2). The WACC reflects the long-term capital structure of the business.

Which ONE of the folowing combinations (true/false) is correct?

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