midH - Midterm Examination, BUS312 NAME: _ Student #_...

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Midterm Examination, BUS312 NAME : ___________________________________ Student #____________________ Instructions: For qualitative questions, point form is not an acceptable answer. For quantitative questions, an indication of how you arrived at particular numbers is required for the purpose of assigning part marks. There are a total of 60 marks on this examination. This examination is composed of 6 questions and 6 pages. Please answer all questions on the examination. No other sheets of paper will be marked. Please use pen rather than pencil for your responses. There will be no reconsideration of marking for pencilled responses. The examination period is one hour and fifty minutes: there will be no extensions. 1. (10 marks) Comment on the following assertion: “Because firms create wealth for their financial asset-holders and their shareholders in particular, the Market to Book ratio for a firm’s common equity must always be greater than one.” Solution 2. (10 marks) ABC Company has a contribution-margin per dollar sales of 25%. Fixed operating costs (before tax, depreciation, and interest) are $300,000. ABC has invested capital of $4,000,000. Trade capital and net fixed assets are 34% and 66% of invested capital respectively. Invested capital has been financed with $1,200,000 in short-term debt and $2,800,000 in equity. The interest rate on short-term debt is 10% per annum. ABC’s tax rate is 40%. Depreciation, which is also equal to capital cost allowance, is 5% of beginning-of- period net fixed assets. Other things equal, ABC’s predicted rate of return on invested capital after tax and after depreciation for the upcoming year (using beginning of period invested
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This note was uploaded on 02/10/2011 for the course BUS 312 taught by Professor Alan during the Spring '03 term at Simon Fraser.

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midH - Midterm Examination, BUS312 NAME: _ Student #_...

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