{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Winter 2007 Midterm - UNIVERSITY OF TORONTO at Scarborough...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
UNIVERSITY OF TORONTO at Scarborough MANAGEMENT MGTC09 (Intermediate Finance) Mid term Exam Date: March 3, 2007 TOTAL MARKS: 100 TIME ALLOWED: 110 min. Prof. Syed W. Ahmed Number of Pages including the title page: 8 Items Allowed: Calculator and one 8.5”x11” single sided crib sheet. Only handwritten (no photocopies) crib sheet is allowed Please do all the problems with pen or at least write the final answer with pen. 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 L30 L31 Mon 11-1 Mon 3-5 Mon 7-9 Tues 5-7 Please circle your section QUESTION NO. MAX. MARKS MARKS OBTAINED 1 20 __________________ 2 25 __________________ 3 25 __________________ 4 30 __________________ TOTAL MARKS 100 __________________ GOOD LUCK
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
-2- QUESTION 1: Denise Ganhao & Carmen Lau Limited (DCL) and Amanda Ng & Frozan Sharifi Inc. (AFI) are identical firms in all respects except for their capital structure. DCL is all equity financed with $50,000,000 in stock. AFI uses both stock and perpetual debt. Its stock is worth $40,000,000 and the interest rate on its debt is 9%. Both firms expect EBIT to be $10,000,000. Ignore taxes. a. Stella Cooke owns $1,000,000 worth of AFI’s stock. What rate of return is she expecting? b. Show how she could generate exactly the same cash flows and the rate of return by investing in DCL and using homemade leverage.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}