Please use the grid provided on page two of the Candidate Answer Booklet to record your answers to each multiple choice question. Do not write out the answers to the MCQs on the lined pages of the answer booklet.
Each question is worth 2 marks.

A company has annual after-tax cash flows of $2 million per year which are expected to continue in perpetuity. The  company has a cost of equity of 10%, a before-tax cost of debt of 5% and an after-tax weighted average cost of capital  of 8% per year. Corporation tax is 20%.
What is the theoretical value of the company?
A $20m
B $40m
C $50m
D $25m

Answer:

 D
Theoretical value = 2m/0·08 = $25m

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