Assignment Investment Management

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Tavai Coudert: 260504873 Brice Huet: 260512073 Thomas Valletoux 260501308 FINE 441 – Investment Management Assignment 1 1. 2. Company Name | Ticker | Citigroup Inc. | C | Alimentation Couche Tard Inc. | Toronto: ATD-A.TO, ATD-B.TO OTC Markets: ANCUF, ANCTF | Corus Entertainment Inc. | Toronto: CJR-B.TOOTC Markets: CJREF | Kingsway Financial Services Inc. | KFS | 4. a. Let P be the price and Q the quantity of shares. Thus, 0.4PQ = $50,000 PQ = 125,000 At $50 per share, Hedi can buy $125,000 / 50 = 2.500 shares of Redcat. b. If Redcat’s price rises to $80, Hedi’s profit is: Profit = 2,500(80 – 50) Profit = $75,000. c. Margin = (Market value – debit balance) / Market value Here, Debit balance = initial loan value = $125,000 – 50,000 = $75,000. Market value = Price x number of shares = 2,500P Thus, 0.25 = (2,500P - $75,000) / 2,500P P = $40. 5. a. PV of CF to equity = 250/1.12 + 262.50/1.12^2 + 275.63/1.12^3 + 289.41/1.12^4 + (303.88+3946.50)/1.12^5 PV of CF to equity = $3224.37 The value of the equity in this firm is $3,224.37. b. PV of CF to firm = 340/1.0994 + 357/1.0994^2 + 374.85/1.0994^3 + 393.59/1.0994^4 + (413.27+6000)/1.0994^5 = $5149 PV of CF to firm = $5,149.14. The value of the firm is $5,149.14. 6. a. b. Cost of Equity = 6.25% + 5.5% = 11.75% Expected price at the end of 2003 = ($13.34 * 1.06 * 0.60) / (11.75% - 6%) Expected price at the end of 2003 = $147.54. c. 7. a. 1993 – Total Assets = $25,000 millions ROC = EBIT (1 – tax rate) / Total Assets = 12 % 0.12 * $2,500 million = 0.6 EBIT EBIT = $ 500 million Income statement (in millions) EBIT = 5,000 Interest expenses = 1,400 Earnings Before Taxes = 3,600 Taxes (tc = 40%) = 1,440 Net income = 2,160 FCFE = NI – Net CAPEX * (1 – δ) – (Change in NWC)*(1 – δ) Where δ is

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