QUIz 4 1432 rse : FIN 101 dent Name: e of Class: 8 PM , Instructor: Dr.Mansour A
ID: 2770180 • Letter: Q
Question
QUIz 4 1432 rse : FIN 101 dent Name: e of Class: 8 PM , Instructor: Dr.Mansour Albarrak Student ID: 9 PM. stion A: Multiple Choice The appropriate risk-free rate to use when calculating the cost of equity for a firm is A) a long-term Treasury rate. B) a short-term Treasury rate. C) a 50/50 mix of short-term and long-term Treasury rates. D) none of the above. The three principal ways in which venture capital firms exit venture-backed companies are selling to a strategic buyer, buying out the founder, and offering stock to the public. A) B) C) D) selling to a strategic buyer, selling to a financial buyer, and buying out the founder. selling to a strategic buyer, selling to a financial buyer, and offering stock to the public None of the above. A firm's capital structure is the mix of financial securities used to finance its activities and can include all of the following except A) stock. B) bonds. C) equity options. D) preferred stock. Long-term debt typically describes A) debt with a maturity greater than one year. B) only coupon debt. C) publicly traded debt. D) none of the above.Explanation / Answer
Answer to 1. Option (a)
A long term treasury rate is considered as the most appropriate risk free rate for calculating cost of Equity as it has no default risk, interest risk and reinvestment risk while short term treasury rate has reinvestment risk.
Answer to 2 . option (c)
Selling the firms' equity to a strategic buyer in the private market, private equity fim buys the new firm with the intention of holding it for a period of time & afterwards selling it at higher price and then venture capitalist will be able to sell the shares through IPO.
Answer 3. Option C)
Capital structure is a mixture of debt and equity. Debt in the form of Bond, long terms note payables and equity in the form of equity shares, preferrance shares or stocks.Equity options are the most common type of equity derivatives, hence nt included in capital structure.
Answer 4. Option A)
Long term Debts basically consists of loans and financial obligations lasting over a year.
Answer 5. Option B) is correct
Market Value of fiirm = Numbers of Share outstanding * Current Value of Shares
= 3,000,000 * 15 = 45,000,000
= 45 Millions