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210FIN316
CORPORATE FINANCE Examiners: Professor Kent Matthews and the internal examiners Write on both sides of the answer paper Answer THREE questions All questions carry equal marks Allocation of marks within questions is shown You have TWO HOURS to complete the paper 210FIN316/2006 1 (a) Why do venture capital firms use staged capital infusion?
20 marks (b) Why is an active IPO market important for venture capitalists?
20 marks (c) Why do investment banks usually require venture capitalists to hold on to their equity stake for a period of time post-IPO? 30 marks (d) Why do issuers of IPOs leave money on the table? 30 marks 2 (a) Does competition in product markets act as a substitute for corporate governance mechanisms? 30 marks (b) Why might a reputation for not expropriating suppliers of finance be worthless? 30 marks (c) How can large shareholders be prevented from expropriating minority shareholders? 40 marks 3 (a) According to Modigliani and Miller (1958) capital structure is irrelevant when it is assumed that the corporate tax rate is zero. How is this result affected when corporate and personal taxes are both greater than zero?
25 marks (b) What might be the impact on capital structure of having a large family owner? 25 marks (c) What are the agency costs of debt? 25 marks (d) What might be the impact on firms’ capital structure of a change in bankruptcy law, which made the bankruptcy process more management-friendly? 25 marks Page 2 of 3 210FIN316/2006 4 (a) If dividend income is taxed more heavily than capital gains, why might firms still pay out dividends? 30 marks (b) Why might growth firms in poor-investor-protection economies pay out higher dividends than mature firms? 30 marks (c) Why are fewer firms paying dividends today than was the case 30 years ago? 40
marks
5 (a) How can a shareholder’s voting rights differ substantially from their cash flow rights? 25 marks (b) Why are widely-held firms common in some countries and not in others?
25 marks (c) When did the separation of ownership and control occur in the UK? Explain why it occurred when it did.