INSTRUCTOR: Mr. Konstantinos Kanellopoulos, MSc (L.S.E.), M.B.A. COURSE: MBA-680-50-F1 !

orporate Financial "#eor$ SEMESTER: %, 01

Revision for the Final Exam (with results)

Konstantinos Kanellopoulos 1 t# &ece'(er 01

!RT I E"ERCISES FROM C#! TERS $%&$'&()&(*&++ Exer,ise $ - Cha.ter $%

)% *as a'a+e, to -in, t#at t#e announce'ent o- a stoc. issue ,ri/es ,o*n t#e /alue o- t#e issuin0 -ir' ($ 102, on a/era0e, o- t#e procee,s o- t#e issue. "#at issue cost ,*ar-s t#e un,er*riter3s spee, an, t#e a,'inistrati/e costs o- t#e issue. %t 'a.es co''on stoc. issues pro#i(iti/el$ e4pensi/e5. a) 6ou are conte'platin0 a 7100 'illion stoc. issue. 8n past e/i,ence, $ou anticipate t#at announce'ent o- t#is issue *ill ,ri/e ,o*n stoc. price ($ 12 an, t#at t#e 'ar.et /alue o$our -ir' *ill -all ($ 102 o- t#e a'ount to (e raise,. 8n t#e ot#er #an,, a,,itional e9uit$ -un,s are necessar$ to -un, an in/est'ent pro:ect t#at $ou (elie/e #as a positi/e ;<= o7>0 'illion. S#oul, $ou procee, *it# t#e issue? () %s t#e -all in 'ar.et /alue on announce'ent o- a stoc. issue an issue cost in t#e sa'e sense as an un,er*riter3s sprea,? @espon, to t#e 9uote t#at (e0ins t#is 9uestion. Ase $our ans*er to (a) as a nu'erical e4a'ple to e4plain $our response to ((). Solution 8t#er t#in0s e9ual, t#e announce'ent o- a ne* stoc. issue to -un, an in/est'ent pro:ect *it# an ;<= o- 7>0 'illion s#oul, increase e9uit$ /alue ($ 7>0 'illion (less issue costs). But, (ase, on past e/i,ence, 'ana0e'ent e4pects e9uit$ /alue to -all ($ 710 'illion. "#ere 'a$ (e se/eral reasons -or t#e ,iscrepanc$B (i) %n/estors 'a$ #a/e alrea,$ ,iscounte, t#e propose, in/est'ent. (Co*e/er, t#is alone *oul, not e4plain a -all in e9uit$ /alue.) (ii) %n/estors 'a$ not (e a*are o- t#e pro:ect at all, (ut t#e$ 'a$ (elie/e instea, t#at cas# is re9uire, (ecause o-, sa$, lo* le/els o- operatin0 cas# -lo*. (iii) %n/estors 'a$ (elie/e t#at t#e -ir'3s ,ecision to issue e9uit$ rat#er t#an ,e(t si0nals 'ana0e'ent3s (elie- t#at t#e stoc. is o/er/alue,. %- t#e stoc. is in,ee, o/er/alue,, t#e stoc. issue 'erel$ (rin0s -or*ar, a stoc. price ,ecline t#at *ill occur e/entuall$ an$*a$. "#ere-ore, t#e -all in /alue is not an issue cost in t#e sa'e sense as t#e un,er*riter3s sprea,. %- t#e stoc. is not o/er/alue,, 'ana0e'ent nee,s to consi,er *#et#er it coul, release so'e in-or'ation to con/ince in/estors t#at its stoc. is correctl$ /alue,, or *#et#er it coul, -inance t#e pro:ect ($ an issue o- ,e(t.

Exer,ise ( - Cha.ter $%
!o'pute t#e present /alue o- interest ta4 s#iel,s 0enerate, ($ t#ese t#ree ,e(t issues. !onsi,er corporate ta4es onl$. "#e 'ar0inal ta4 rate is "c D .15. c) A 71,000, one $ear loan at 82. ,) A -i/e-$ear loan o- 71,000 at 82. Assu'e no principal is repai, until 'aturit$. e) A 71,000 perpetuit$ at E2.

Solutuion

a.

PV(tax shield) =
5

TC (rDD) 0.35(0.08 $1,000) = = $25.93 1 + rD 1.08

(. c.

PV(tax shield) =
t =1

0.15(0.08 71,000) = $111.80 (1.08) t

<=(ta4 s#iel,) D "! & D 7150

Exer,ise + - Cha.ter $%
@onal, Masulis #as anal$+e, t#e stoc. price i'pact o- e4c#an0e o--ers o- ,e(t -or e9uit$ or /ice /ersa. %n an e4c#an0e o--er, t#e -ir' o--ers to tra,e -res#l$ issue, securities -or seasone, securities in t#e #an,s o- in/estors. "#us, a -ir' t#at *ante, to 'o/e to a #i0#er ,e(t ratio coul, o--er to tra,e ne* ,e(t -or outstan,in0 s#ares. A -ir' t#at *ante, to 'o/e to a 'ore conser/ati/e capital structure coul, o--er to tra,e ne* s#ares -or outstan,in0 ,e(t securities. Masulis -oun, t#at ,e(t -or e9uit$ e4c#an0es *ere 0oo, ne*s (stoc. price increase, on announce'ent) an, e9uit$ -or ,e(t e4c#an0es *ere (a, ne*s. -) Are t#ese results consistent *it# t#e tra,e-o-- t#eor$ o- capital structure? 0) Are t#e results consistent *it# t#e e/i,ence t#at in/estors re0ar, announce'ents o- (i) stoc. issues as (a, ne*s, (ii) stoc. repurc#ases as 0oo, ne*s, an, (iii) ,e(t issues as no ne*s, or at 'ost tri-lin0 ,isappoint'ents? #) Co* coul, Masulis3s results (e e4plaine,? Solution a. Masulis3 results are consistent *it# t#e /ie* t#at ,e(t is al*a$s pre-era(le (ecause o- its ta4 a,/anta0e, (ut are not consistent *it# t#e Ftra,eo--3 t#eor$, *#ic# #ol,s t#at 'ana0e'ent stri.es a (alance (et*een t#e ta4 a,/anta0e o- ,e(t an, t#e costs o- possi(le -inancial ,istress. %n t#e tra,eo-- t#eor$, e4c#an0e o--ers *oul, (e un,erta.en to 'o/e t#e -ir'3s ,e(t le/el to*ar, t#e opti'u'. "#at ou0#t to (e 0oo, ne*s, i- an$t#in0, re0ar,less o- *#et#er le/era0e is increase, or ,ecrease,. (. "#e results are consistent *it# t#e e/i,ence re0ar,in0 t#e announce'ent e--ects on securit$ issues an, repurc#ases. c. 8ne e4planation is t#at t#e e4c#an0e o--ers si0nal 'ana0e'ent3s assess'ent o- t#e -ir'3s prospects. Mana0e'ent *oul, onl$ (e *illin0 to ta.e on 'ore ,e(t i- t#e$ *ere 9uite con-i,ent a(out -uture cas# -lo*, -or e4a'ple, an, *oul, *ant to ,ecrease ,e(t i- t#e$ *ere concerne, a(out t#e -ir'3s a(ilit$ to 'eet ,e(t pa$'ents in t#e -uture.

Exer,ise / - Cha.ter $%
"#e Sala, 8il Stora0e (S8S) !o'pan$ #as -inance, a lar0e part o- its -acilities *it# lon0-ter' ,e(t. "#ere is a si0ni-icant ris. o- ,e-ault, (ut t#e co'pan$ is not on t#e ropes $et. E4plainB a) G#$ S8S stoc.#ol,ers coul, lose ($ in/estin0 in a positi/e-;<= pro:ect -inance, ($ an e9uit$ issue. () G#$ S8S stoc.#ol,ers coul, 0ain ($ in/estin0 in a ne0ati/e-;<= pro:ect -inance, ($ cas#. c) G#$ S8S stoc.#ol,ers coul, 0ain -ro' pa$in0 out a lar0e cas# ,i/i,en,. Solution a. S8S stoc.#ol,ers coul, lose i- t#e$ in/est in t#e positi/e ;<= pro:ect an, t#en S8S (eco'es (an.rupt. An,er t#ese con,itions, t#e (ene-its o- t#e pro:ect accrue to t#e (on,#ol,ers. (. %- t#e ne* pro:ect is su--icientl$ ris.$, t#en, e/en t#ou0# it #as a ne0ati/e ;<=, it 'i0#t increase stoc.#ol,er *ealt# ($ 'ore t#an t#e 'one$ in/este,. "#is is a result o- t#e -act t#at, -or a /er$ ris.$ in/est'ent, un,erta.en ($ a -ir' *it# a si0ni-icant ris. o- ,e-ault, stoc.#ol,ers (ene-it i- a 'ore -a/ora(le outco'e is actuall$ reali+e,, *#ile t#e cost oun-a/ora(le outco'es is (orne ($ (on,#ol,ers. c. A0ain, t#in. o- t#e e4tre'e caseB Suppose S8S pa$s out all o- its assets as one lu'p-su' ,i/i,en,. Stoc.#ol,ers 0et all o- t#e assets, an, t#e (on,#ol,ers are le-t *it# not#in0.

Exer,ise 0 - Cha.ter $'

!alculate t#e *ei0#te, a/era0e cost o- capital (GA!!) -or Fe,erate, Hun.$ar,s o- A'erica, usin0 t#e -ollo*in0 in-or'ationB i) &e(tB 7E5,000,000 (oo. /alue outstan,in0. "#e ,e(t is tra,in0 at I02 o- (oo. /alue. "#e $iel, to 'aturit$ is I2. :) E9uit$B ,500,000 s#ares sellin0 at 7> per s#are. Assu'e t#e e4pecte, rate o- return on Fe,erate,3s stoc. is 182. .) "a4esB Fe,erate,3s 'ar0inal ta4 rate is "c D .15. Solution Mar.et /alues o- ,e(t an, e9uit$ are D =0 .IJE5 D 76E.5 'illion an, E= > J .5 D7105 'illion. D/V= .1I. GA!!D.0IJ(1-0.15)J.1IK0.18J0.61D0.11 5, or 11. 52. "#e .e$ assu'ptionsB sta(le capital structure (D/V constant)L Fe,erate, *ill pa$ ta4es at 152 'ar0inal rate in all rele/ant -uture $earsL use GA!! as ,iscount rate -or pro:ects *it# sa'e ris. as a/era0e o- -ir'3s assets.

>

Exer,ise ) - Cha.ter $'

"#e GA!! -or'ula see's to i'pl$ t#at ,e(t is )c#eaper5 t#an e9uit$ M t#at is, t#at a -ir' *it# 'ore ,e(t coul, use a lo*er ,iscount rate. &oes t#is 'a.e sense? E4plain (rie-l$. Solution &e(t is ta4 ,e,ucti(le M %nitiall$ it is 0oo, to use so'e ,e(t in t#e capital structure. But t#ere is a point *#ere t#e a,/anta0es o- usin0 ,e(t are counter(alance, ($ t#eir ,isa,/anta0es, especiall$ *#en t#ere is a case o- a #i0# ,e(t ratio.

Exer,ise * - Cha.ter $'

"#e Bunsen !#e'ical !o'pan$ is currentl$ at its tar0et ,e(t ratio o- >02. %t is conte'platin0 a 71 'illion e4pansion o- its e4istin0 (usiness. "#is e4pansion is e4pecte, to pro,uce a cas# in-lo* o- 7110,000 a $ear in perpetuit$. "#e co'pan$ is uncertain *#et#er to un,erta.e t#is e4pansion an, #o* to -inance it. "#e t*o options are a 71 'illion issue o- co''on stoc. or a 71 'illion issue o- 0-$ear ,e(t. "#e -lotation costs o- a stoc. issue *oul, (e aroun, 52 o- t#e a'ount raise,, an, t#e -lotation costs o- a ,e(t issue *oul, (e aroun, 1N 2. Bunsen3s -inancial 'ana0er, Miss <oll$ Et#$lene, esti'ates t#at t#e re9uire, on t#e co'pan$3s e9uit$ is 1>2, (ut s#e ar0ues t#at -lotation costs increase t#e cost o- ne* e9uit$ to 1I2. 8n t#is (asis, t#e pro:ect ,oes not appear /ia(le. 8n t#e ot#er #an,, s#e points out t#at t#e co'pan$ can raise ne* ,e(t on a E2 $iel,, *#ic# *oul, 'a.e t#e cost o- ne* ,e(t 8N 2. S#e t#ere-ore reco''en,s t#at Bunsen s#oul, 0o a#ea, *it# t#e pro:ect an, -inance it *it# an issue o- lon0-ter' ,e(t. %s Miss Et#$lene ri0#t? Co* *oul, $ou e/aluate t#e pro:ect? Solution ;ote t#e -ollo*in0B "#e costs o- ,e(t an, e9uit$ are not 8.52 an, 1I2, respecti/el$. "#ese -i0ures assu'e t#e issue costs are pai, e/er$ $ear, not :ust at issue. "#e -act t#at Bunsen can -inance t#e entire cost o- t#e pro:ect *it# ,e(t is irrele/ant. "#e cost o- capital ,oes not ,epen, on t#e i''e,iate source o- -un,sL *#at 'atters is t#e pro:ect3s contri(ution to t#e -ir'3s o/erall (orro*in0 po*er. "#e pro:ect is e4pecte, to support ,e(t in perpetuit$. "#e -act t#at t#e -irst ,e(t issue is -or onl$ 0 $ears is irrele/ant.

Assu'e t#e pro:ect #as t#e sa'e (usiness ris. as t#e -ir'3s ot#er assets. Because it is a perpetuit$, *e can use t#e -ir'3s *ei0#te,-a/era0e cost o- capital. %- *e i0nore issue costsB GA!! D Or& (1 M "!) (&P=)Q K OrE (EP=)Q GA!! D O0.0E (1 M 0.15) 0.>Q K O0.1> 0.6Q D 0.10 D 10. 2

Asin0 t#is ,iscount rateB

NPV = $1,000,000 + $130,000 = $272,016 0.1022

"#e issue costs areB Stoc. issueB Bon, issueB 0.050 71,000,000 D 750,000 0.015 71,000,000 D 715,000

&e(t is clearl$ less e4pensi/e. <ro:ect ;<= net o- issue costs is re,uce, toB (7 E ,016 M 715,000) D 7 5E,016. Co*e/er, i- ,e(t is use,, t#e -ir'3s ,e(t ratio *ill (e a(o/e t#e tar0et ratio, an, 'ore e9uit$ *ill #a/e to (e raise, later. %- ,e(t -inancin0 can (e o(taine, usin0 retainin0 earnin0s, t#en t#ere are no ot#er issue costs to consi,er. %stoc. *ill (e issue, to re0ain t#e tar0et ,e(t ratio, an a,,itional issue cost is incurre,. A care-ul esti'ate o- t#e issue costs attri(uta(le to t#is pro:ect *oul, re9uire a co'parison o- Bunsen3s -inancial plan F*it#3 as co'pare, to F*it#out3 t#is pro:ect.

Exer,ise % - Cha.ter (*
Bla,es plc *oul, li.e to speculate on t#e anticipate, 'o/e'ent o- t#e (a#lt currenc$ a0ainst t#e Britis# poun,. Bla,es plc e4pects t#at t#e (a#lt currenc$ *oul, 'o/e -ro' a current le/el o- 0.01>E Britis# poun,s to t#e le/el o- 0.0111 Britis# poun,s *it#in t#e ne4t 10 ,a$s. "#e -ollo*in0 inter(an. len,in0 an, (orro*in0 rates e4istB !urrenc$ Britis# poun,s "#ai (a#lt Len,in0 rate 8.12 1>.82 Borro*in0 rate 8. 2 15.>2

Assu'e t#at Bla,es plc #as a (orro*in0 capacit$ o- eit#er E 'illion Britis# Sterlin0 or t#e (a#lt e9ui/alent o- t#is a'ount, ,epen,in0 on *#ic# currenc$ it *ants to (orro*. Co* coul, Bla,es plc capitali+e on its e4pectations *it#out usin0 ,eposite, -un,s? Esti'ate t#e speculati/e pro-its (in poun,s) t#at coul, (e 0enerate, -ro' t#is strate0$. Solution Depreciation of the Baht from 0.0147 to 0.0133 1. Borro* "#ai (a#t (RE,000,000P0.01>E) . !on/ert t#e "#ai (a#t to poun,s >E6,1I0,>E6 (a#tS R0.01>E). 1. Len, t#e poun,s at 8.102 annuali+e,, *#ic# represents a 0.682 return o/er t#e 10-,a$ perio, Oco'pute, as 8.102 S (10P160)Q. A-ter 10 ,a$s, Bla,es *oul, recei/e (RE,000,000 S (1 K .0068)) >E6,1I0,>E6 E,000,000

E,0>E,600.00

>. Ase t#e procee,s o- t#e ,ollar loan repa$'ent (on &a$ 10) to repa$ t#e (a#t (orro*e,. "#e annual interest on t#e (a#t (orro*e, is 15.>02, or 1. 82 o/er t#e 10-,a$ perio, Oco'pute, as 15.>02 S (10P160)Q. "#e total (a#t a'ount necessar$ to repa$ t#e loan is t#ere-ore (>E6,1I0,>E6 S (1 K . 01 8)) 5. ;u'(er o- poun,s necessar$ to repa$ (a#t loan (>8 , 85,E1> (a#tS R0.0111) 6. Speculati/e pro-it (RE,0>E,600 M R6,>1>,>00)

>8 , 85,E1> 6,>1>,>00 R611, 00

Cha.ter () - Multi.le ,hoi,e 1uestions

1. Suppose $ou (orro* 7I5. > -or one $ear at 52 an, in/est 7I5. > -or t*o $ears at E2. For t#e ti'e perio, (e0innin0 one $ear -ro' to,a$, $ou #a/eB (appro4i'atel$) a. Borro*e, at E2 (. %n/este, at E2 c. Borro*e, at I2 ,. %n/este, at I2 KI5. >(1.05) -100L I5. >(1.0E)(1.0E) K10I.0>L i.e. (%n/est at I2) . Fir' A is pa$in0 a -i4e, 7E00,000 in interest pa$'ents, *#ile Fir' B is pa$in0 L%B8@ plus 50 (asis points on 710,000,000 loans. "#e current L%B8@ rate is 6. 52. Fir' A an, B #a/e a0ree, to s*ap interest pa$'ents, #o* 'uc# *ill (e pai, to *#ic# Fir' t#is $ear? a. A pa$s 7E50,000 to Fir' B (. B pa$s 5,000 to Fir' A c. B pa$s 750,000 to Fir' A ,. A pa$s 7 5,000 to Fir' B Floatin0 rate D 6.E52L %nterest cost D 76E5,000L Fi4e, rate D E.02L %nterest cost D 7E00,000L A pa$s 7 5,000 to B 1. First ;ational Ban. #as 'a,e a 5-$ear, 7100 'illion -i4e,-rate loan at 102. Annual interest pa$'ents are 710 'illion, an, all principal *ill (e repai, in $ear 5. "#e (an. *ants to s*ap t#e -i4e, interest pa$'ent into -loatin0-rate pa$'ents. %- t#e (an. coul, (orro* at a -i4e, rate o- 82 -or 5 $ears, *#at is t#e notional principal o- t#e s*ap? a. 780 'illion (. 7100 'illion c. 71 5 'illion ,. 7180 'illion 10P0.08 D 1 5 >. "#ir, ;ational Ban. #as 'a,e 10-$ear, 7 5 'illion -i4e,-rate loan at 1 2. Annual interest pa$'ents are 71 'illion, an, all principal *ill (e repai, in $ear 10. "#e (an. *ants to s*ap t#e -i4e, interest pa$'ents into -loatin0-rate pa$'ents. %- t#e (an. coul, (orro* at a -i4e, rate o102 -or 10 $ears, *#at is t#e notional principal o- t#e s*ap? a. 7>0 'illion (. 7 0 'illion c. 7 5 'illion ,. 710 'illion

1P0.1 D 10

Cha.ter (* - Multi.le ,hoi,e 1uestions

1. %- a Bi0 Mac costs !71.00in !ana,a an, 7 .11 in t#e ASA, accor,in0 to purc#asin0 po*er parit$, *#at is t#e i'plie, e4c#an0e rate in !7PAS7? a. 1. I8E (. 0.E 5 c. 1.1 E6 ,. ;one o- t#e a(o/e

!7PAS7 D 1P .11 D 1. I8E

. "#e Me4ican econo'$ is pre,icte, to a/era0e ,ou(le ,i0it in-lation o/er t#e ne4t t*o $ears o102 per annu'. "#e in-lation -orecast -or t#e AS is >2 per annu'. %- t#e current e4c#an0e rate is 70.0I1Ppeso, *#at *ill (e t#e e4c#an0e rate t*o $ears -ro' no*? a. 70.0811 (. 70.0811> c. 70.1018 ,. ;one o- t#e a(o/e

E(Spot) D (0.0I1)O(1.0>P1.10)T Q D 70.0811>Ppeso

1. !urrenc$ ris. e4posure can (e cate0ori+e, asB a. "ransactions e4posure (. Econo'ic e4posure c. "ranslation e4posure ,. All o- t#e a(o/e

"#e correct ans*er is &.

>. UH !o'pan$ -ro' t#e ASA is e/aluatin0 a proposal to (uil, a ne* plant in t#e Anite, Kin0,o'. "#e e4pecte, cas# -lo*s in poun,s are as -ollo*sB 6ear 0, -50L 6ear 1, 5L 6ear , 15L 6ear 1, >0. "#e ,iscount rate in B< is 1>2 an, t#e ,iscount rate in t#e AS7 is 1 2. "#e spot rate is AS71.IIPB<. !alculate t#e ;<= o- t#e pro:ect in B<B a. K 8.6I (. K 5.86 c. K> .6E ,. ;one o- t#e a(o/e

;<= D -50 K ( 5P1.1>) K (15P1.1>T ) K (>0P1.1>T1) D 5.86 5. UH !o'pan$ -ro' t#e ASA is e/aluatin0 a proposal to (uil, a ne* plant in t#e Anite, Kin0,o'. "#e e4pecte, cas# -lo*s in poun,s are as -ollo*sB 6ear 0, -50L 6ear 1, 5L 6ear , 15L 6ear 1, >0. "#e ,iscount rate in B< is 1>2 an, t#e ,iscount rate in t#e AS7 is 1 2. "#e spot rate is AS71.IIPB<. !alculate t#e ;<= in AS7B a. K 5.86 (. K 8.6I c. K51.>6 ,. ;one o- t#e a(o/e ( 5.86)(1.II) D 51.>6 6. Assu'e t#at international capital 'ar.ets are co'petiti/e an, t#at t#e real interest rates are t#e sa'e. "#e one-$ear interest rate is appro4i'atel$ I2 in t#e ASA an, 52 in S*it+erlan,. %- t#e e4pecte, in-lation rate is 62 in t#e ASA, *#at is t#e e4pecte, in-lation rate in S*it+erlan,? (Appro4i'atel$) a. 162 (. 102 c. .12 ,. ;one o- t#e a(o/e

@eal interest rate D O1.0IP1.06Q - 1 D .812L %n-lation rate D O1.05P1.0 81Q - 1 D .12

10

Cha.ter ++ - Multi.le ,hoi,e 1uestions

1. G#ic# o- t#e -ollo*in0 state'ent(s) is(are) true a(out co'pan$ -inancin0 in t#e A.S.A.? %) "#e A.S.A. #as a lar0e a'ount o- (an. loans outstan,in0 %%) "#e A.S.A. #as a lar0e stoc. 'ar.et %%%) "#e A.S.A. #as a lar0e (on, 'ar.et a. % onl$ (. %% onl$ c. %,%% an, %%% ,. %% an, %%% onl$ ! is correct. . %n,i/i,ual in/estors in t#e A.S.A. can pla$ an i'portant part in corporate 0o/ernance (ecauseB %) A lar0e -raction o- #ouse#ol,sV port-olio is #el, ,irectl$ in e9uit$ securities %%) A lar0e -raction o- #ouse#ol,sV port-olio is #el, in pension -un,s %%%) A lar0e -raction o- #ouse#ol,sV port-olio is #el, ,irectl$ in (an. ,eposits a. % onl$ (. %% onl$ c. %%% onl$ ,. %% an, %%% onl$ A is correct. 1. Lar0e -ir's in Wer'an$ #a/eB %) "#e (oar, o- ,irectors %%) "#e super/isor$ (oar, %%%) "#e 'ana0e'ent (oar, a. % onl$ (. %% onl$ c. %%% onl$ ,. %% an, %%% onl$ & is correct.

>. "#e (an.in0 s$ste' in Wer'an$ isB a. ;ationall$ c#artere, (an.in0 s$ste' (. &ual (an.in0 s$ste' c. Ani/ersal (an.in0 s$ste' ,. State c#artere, s$ste'

! is correct.

11

5. A -ir' *#ose onl$ asset is controllin0 (loc.s o- s#ares in ot#er -ir's is calle,B a. A con0lo'erate (. A #ol,in0 co'pan$ c. A p$ra'i, ,. &ual-class co'pan$ B is correct

6. Lar0e (usiness co'(inations in Hapan are nor'all$ carrie, out t#rou0# reciprocal o*ners#ip o- co''on stoc.. "#ese net*or.s, or .eiretsu, in/ol/e a lar0e nu'(er o- ,i/ersi-ie, co'panies centere, aroun, a lar0e (an., in,ustrial -ir', or tra,in0 -ir'. 8ne o- t#e 'ain (ene-its o- t#is structure is ar0ue, to (eB a. "#e 'onopolistic control o- econo'ic se0'ents (. "#e re,uction o- -inancial ,istress costs c. Lar0e scale ,i/ersi-ication t#at cannot (e ,one ($ in,i/i,ual s#are#ol,ers ,. Wreater e--icienc$ in 'ana0e'ent (ecause t#e 'ana0e'ent s.ills are #o'o0eneous e/en -or B is correct E. "#e i,ea t#at a corporationVs -inancial 0oal is to X'a4i'i+e stoc.#ol,er /alueX is 'ore pre/alent inB %) t#e A.S.A %%) t#e A.K. %%%) France %=) Hapan a. % an, %% onl$ (. %% an, %%% onl$ c. %%% an, %= onl$ ,. %% an, %= onl$ A is correct 8. "#e -ollo*in0 are sources o- -inancin0 -or corporationsB %) Couse#ol,s %%) Financial institutions %%%) 8t#er corporations a. % onl$ (. %% onl$ c. %%% onl$ ,. %, %%, an, %%% & is correct