Type
Essay
Pages
4 pages
Word Count
435 words
School
University of southampto
Course Code
Corporate

Corporate finance

January 22, 2020
Copyright 2019 v01 © University of Southampton Page 1 of 4
UNIVERSITY OF SOUTHAMPTON MANG6022W1
SEMESTER 1 EXAMINATIONS 2018-19
CORPORATE FINANCE 1
DURATION: 120 MINUTES (2 HOURS)
This paper contains THREE questions.
Answer TWO questions in total.
An outline marking scheme is shown in brackets to the right of each
question.
Only University approved calculators may be used.
A foreign language direct ‘Word to Word’ translation dictionary
(paper version) ONLY is permitted provided it contains no notes,
additions or annotations.
MANG6022W1
Copyright 2019 v01 © University of Southampton Page 2 of 4
1. TSAKALOTOS plc, a Greek company, has 30 million shares
outstanding with a price of 20 per share. In addition,
TSAKALOTOS has issued bonds with a total current market
value of 100 million. Suppose TSAKALOTOS’s equity cost
of capital is 10%, and its debt cost of capital is 5%.
(a) What is TSAKALOTOS’s pre-tax weighted average cost
of capital? [15 marks]
(b) If TSAKALOTOSs corporate tax rate is 30%, what is its
after-tax weighted average cost of capital? [15 marks]
(c) State briefly the Modigliani and Miller’s capital structure
theory (Propositions I and II).
[25 marks]
(d) Discuss the impact of corporate and personal tax rates on
Modigliani and Miller’s capital structure theory.
[45 marks]
MANG6022W1
2. In January 2014, PORT plc raised £200 million of new capital
through the issuance of 20 year Convertible Bonds with a
coupon rate of 4% and face value £10,000. The conversion
price was set at £20 which was £5 higher than the market

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