C09-final-summer2009-Assg-Fall2009

C09-final-summer2009-Assg-Fall2009 - UNIVERSITY OF TORONTO...

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UNIVERSITY OF TORONTO at Scarborough Management MGTC09 (Intermediate Finance) Final Exam Date: August 18, 2009 ASSIGNMENT Due Date: Dec 4, 2009 in my office by 12 noon Prof. Syed W. Ahmed STUDENT’S NAME:________________________________________________ Last First Middle STUDENT’S I.D. NO.:_______________________________________________ QUESTION NO. MAX. MARKS MARKS OBTAINED 1 15 _________________ 2 15 _________________ 3 20 _________________ 4 15 _________________ 5 20 _________________ 6 15 _________________ TOTAL MARKS 100 _________________ QUESTION 1: ProfitMaking Enterprises currently has 1,000,000 shares of common stock outstanding with a market price of \$60 per share. It also has \$20,000,000 in 6% coupon rate bond outstanding selling at par. The firm has a tax rate of 40%. The firm is considering a \$30 million expansion program that can be financed employing either 1. preferred stock sold at par with a 7% cash dividend, or 2. half common stock sold at \$60 per share and half 8% coupon rate bond sold at par. a. What is indifferent EBIT between the two plans? b. If EBIT is expected to be \$10,000,000 after the financing, what is the EPS under the two plans?

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-2- QUESTION 2: OutWeGo Limited will remain in business for one more year. The estimated probability of a boom year is 50%, status quo is 30% and that of recession is 20%. It is projected that OutWeGo will have total cash flow of \$100 million in a boom year, \$70 million in status quo and \$40 million in recession. Its required debt payment is \$70 million at the year end. Assume risk
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This note was uploaded on 04/19/2010 for the course MGT MGTC09 taught by Professor Syedahmed during the Spring '10 term at University of Toronto.

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C09-final-summer2009-Assg-Fall2009 - UNIVERSITY OF TORONTO...

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