RSM333mid11

# RSM333mid11 - UNIVERSITY OF TORONTO Joseph L. Rotman School...

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UNIVERSITY OF TORONTO Joseph L. Rotman School of Management Feb. 28, 2011 Buti/Farooqi RSM333 MID-TERM EXAMINATION Florence/Konukoglu DURATION - 2 hours Aid Allowed: Silent electronic calculator and one 1-sided 8 1 2 " 11" crib sheet Name: Student Number: Circle the section that you are registered in: Instructions 1. Write all your answers on the examination paper. 2. Answer ±ve out of six questions. Each question is worth 20 marks. Do not answer all six questions! In the table below, cross out the question that you choose not to answer . Question Marks 1 2 3 4 5 6 Total 1

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1. A landlord is faced with the following opportunity. She currently rents a warehouse for apartments, which she believes she can rent for \$1000/month each . Assume her op- erating costs will increase, once the conversion is complete, by \$500/month. Suppose the interest rate is an annual rate of 12% with monthly compounding. Assume that rent is paid at the end of each month, in perpetuity. Ignore the time taken to do the conversion. (a) What is her pay-back period? (5 points) (b) Our landlord can accept a discounted pay-back period (where we DO take into account the time value of money) no longer than 4 years (48 months). Should she proceed with the conversion? (5 points) (c) Calculate the monthly and annualized IRR for this project. (5 points) (d) What is the NPV of this project if the appropriate annual discount rate is 12% with monthly compounding? (5 points) 2. Management at Afridi Ltd. is setting up a unit to sell TVs and accessories. The
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## RSM333mid11 - UNIVERSITY OF TORONTO Joseph L. Rotman School...

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