MM Likely Questions

Question 1

E(MV) if no debt or PV (assets) given

Answer 1

share price x no of shares

Question 2

Value per share (pre recap)

Answer 2

E(MV) / shares

Question 3

Share Issuance

Answer 3

Debt FV / share price

Question 4

Cost of equity

Answer 4

Ru + D/E(Ru-Rd)

Question 5

PV (tax)

Answer 5

rd x t x D / rd

Question 6

Equity (MV/PV) if PV assets given

Answer 6

PV assets - debt

Question 7

Formula working out price and number of shares after recap

Answer 7

np = new debt, p(shares - n) = pv new equity

Question 8

Earnings per share after tax

Answer 8

Earnings (1 - tax rate) / no of shares outstanding

Question 9

When are shareholders better off? (2)

Answer 9

Lower number of shares and higher price after share repurchase

Question 10

What are the conditions for MM to hold?

Answer 10

PV(assets) the same and no change in share price