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midS - Midterm Examination BUS312 Summer 2010 NAME_Student...

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Midterm Examination, BUS312 Summer 2010 NAME : ________________________________________Student #________________ Instructions: Open book and open notes. Work independently. 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. Answer all questions on the examination. No other papers will be marked. The examination period is two hours exactly. If you would like your exam eligible for remarking, use pen rather than pencil. No washroom breaks during the exam period. Remove baseball caps or wear them backwards. 1. (10 marks) ABC Company has breakeven dollar sales of $600,000 per annum and invested capital of $2,500,000. ABC’s tax rate is 40%. Depreciation is $120,000 per annum. The forecast for the upcoming year for ABC’s Rate of Return on Invested Capital (after tax and after depreciation with today’s invested capital) is 6%. At forecast sales, ABC’s EBITDA margin will be 20%. Required: Jointly determine ABC’s contribution margin per dollar sales and their fixed operating costs per annum. “Jointly determine” means that you must find two equations for the two unknowns that you need to find: contribution margin per dollar sales and fixed operating costs per annum. S o l u t i o n
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2. (10 marks) ABC Company Ltd is a Canadian company. It is a CCPC for tax purposes with a 2010 income tax rate of 13.5% for the first $500,000 of active business income and 28.5% for active business income above $500,000. Tax liability is 13.5% times $500,000 plus 28.5% times active business income above $500,000 plus 38.5% times the taxable portion of net realized capital gains. ABC paid its tax liability in the amount of $Y during 2010. A component of net income is “provision for income tax” in the amount of $375,000. Also, during 2010, ABC did a number of things. They paid dividends to their shareholders in the amount of $305,000. They
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