ECO359-08MiDA - DEPARTMENT OF ECONOMICS UNIVERSITY OF...

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D EPARTMENT OF E CONOMICS U NIVERSITY OF T ORONTO ECO359 – Financial Economics II Summer 2008 Midterm: July 22 Solutions Instructions : This is a closed book test. A formula sheet is attached to the test. You are allowed the use of a calculator . Show all your work otherwise you will not get full cre dit. Only written re-grade requests submitted with a completely unaltered exam paper can be considered. You have 2 hours. Good Luck! NAME: _____________________________________________ ID#: _____________________________________________ 1 _______________ (15 points) 2 _______________ (10 points) 3 _______________ (20 points) 4 _______________ (20 points) 5 _______________ (15 points) Total _____________ (80 points)
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2 Problem 2: [15 points] Balance Sheet (‘000’s) December 31, 2006 December 31, 2007 Assets Cash 60 ??? Accounts Receivable 80 120 Inventory 60 85 Total Current Assets 200 ??? Capital Assets 600 750 Accumulated Depreciation (250) ??? Net Capital Assets 350 ??? Total Assets 550 ??? Liabilities Accounts Payable 100 120 Accrued expenses 75 110 Total Current Liabilities 175 230 Long Term Debt 250 200 Retaining Earnings 125 ??? Total of Liabilities + Equity 550 ??? a) Fill in all the ??? in the Balance Sheet above, and find the cash balance on December 31, 2007. b) Calculate the Operating Cash Flow using EBIT + Depreciation-Taxes c) Calculate the Financial Cash Flow. d) Verify the change in ( Δ cash) Cash account using TCF = Financial Cash flow.
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3 Problem 2: [10 points] MyComp is considering adding a newer and more efficient unit to its production line. The new unit will cost $350,000 and will require an additional $50,000 for delivery and installation. The new unit will depreciate over its four-year life using straight line depreciation to a value of zero at the end of the 4 years. The MyComp also anticipates that it will have to maintain its working capital requirements above its regular levels as follows: Year 0: $50,000; Year 1: $60,000; Year 2: $70,000; Year 3: $60,000; Year 4: $50000. If MyComp purchases the new unit, the first year revenue is expected to increase by $100,000, and the
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This note was uploaded on 07/18/2010 for the course LIFE SCIEN eco359 taught by Professor Recio during the Summer '10 term at University of Toronto.

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ECO359-08MiDA - DEPARTMENT OF ECONOMICS UNIVERSITY OF...

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