Summer 2008 Final Exam - UNIVERSITY OF TORONTO at...

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UNIVERSITY OF TORONTO at Scarborough MANAGEMENT MGTC09 (Intermediate Finance) L01 & L02 Final Exam Date: August 14, 2008 Location: HW216 Time: 2-4 p.m. Prof. Syed W. Ahmed TAs: Peter Phung & Derrick Fung Number of Pages including the title page: 10 Items Allowed: Calculator and one 8.5”*11” double sided crib sheet. Only handwritten (no photocopies) crib sheet is allowed. You can write on both sides of a page to answer the questions. STUDENT’S NAME:________________________________________________ Last First Middle STUDENT’S I.D. NO.:_______________________________________________ SECTION: L01 L02 Wed 11-1 Wed 3-5 Please circle your section QUESTION NO. MAX. MARKS MARKS OBTAINED 1 20 __________________ 2 20 __________________ 3 20 __________________ 4 20 __________________ 5 20 __________________ TOTAL MARKS 100 __________________ GOOD LUCK
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-2- QUESTION 1: NoDebt Inc. an all equity firm has 100,000 shares outstanding. Cost of equity is 8%, expects earnings of $350,000 per year in perpetuity. The firm pays no taxes. NoDebt Inc. is considering acquiring NoLeverage Limited for $925,000. Acquisition will increase NoDebt earnings by $117,500 a year in perpetuity. NoLeverage is also an all equity firm with a required rate of return of 10%. a. Determine NoDebt stock price before the buyout announcement. b. Suppose NoDebt will issue equity to fund the buyout. 1. What will NoDebt stock price be immediately after the announcement?
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