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QUESTION 3 Madhuri Dixit owns 10,000 shares of Bookface Tech Solutions Inc. Madhuri would like to remain invested in Bookface for 5 years. Bookface will pay a $5 per share dividend one year from today, $6 two years from today, and after that dividends will decrease at 2% per year forever. The required rate of return on Bookface stock is 10%. a. What is the current price of the stock? b. Suppose Madhuri prefers to receive $70,000 dividend per year for the next four years. How can she accomplish this? What will be the value of her portfolio after 5 years? QUESTION 4: Lease Anything Limited (LAL) is trying to determine the lease payment it should quote for the cranes it is considering purchasing for leasing. Assume that each crane costs $1,000,000, has a 5 year useful life and a CCA rate of 50%. Before tax operating cost of the crane is $200,000 per year paid by the owner (lessor) of the asset. The corporate tax rate is 40%, before tax cost of debt is 8% and the risk free rate is 3%. Cost of capital is 10%. CCA tax shield will be claimed at the end of the year and the lease payment and operating costs will be at the beginning of the year. Salvage value of the crane after 5 years will be either $200,000 or $100,000. Probability that salvage value will be $200,000 is 40% a. Determine the annual lease payment if LAL would like to have an NPV of $50,000. Assume asset pool is open. b. Determine the annual lease payment if LAL would like to have an NPV of $50,000. Assume asset pool is closed. c. Continuing with b) above, suppose Habitat for Friends Inc. (HFI) has a corporate tax rate of 0%, cost of debt is 8%, and cost of capital is 13%. What is the maximum lease payment HFI would be willing to make? d. Within what range of values LAL and HFI can make a deal? QUESTION 5: Markham Equities Limited (MEL) is evaluating four possible targets, which have the following financial data: MEL presently has 1,000,000 shares outstanding, its stock price is $50, and its expected earnings are $5,000,000 without any merger. Assume that the target firms have no debt and each of the target firm can be acquired at a merger premium of 25% a. Calculate the NPV of the four proposed mergers. Are any of the mergers infeasible? b. Assuming acquisition through stock. Determine the post-merger EPS for the feasible merger candidates. c. If only one merger can be undertaken, which one is it? Why

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