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Q1F - ABC’s interest expense for 1999 is the interest...

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QUIZ ONE: BUSINESS 312 NAME ___________________________________ Student Number__________________________ Instructions: Open book and open notes. Please work independently. Hand-in no additional sheets of paper; use the back of this quiz sheet if you need more space. If you would like your marked quiz returned, use pen rather than pencil for your answer. The following information is available on the financial accounts of ABC Corporation. 1999 EBITDA ? depreciation ? interest ? 1998 1999 Trade Capital ? 200 Short-term Debt ? ? Net Fixed Assets ? ? Equity ? 520 Invested Capital 500 850 NOTES: “Equity” represents the sum of all of the accounting equity accounts (e.g., share-capital plus retained earnings). You can presume that depreciation for tax and for financial statement purposes is the same, and therefore, there is no deferred income tax in this problem (i.e., capital cost allowance is the same as financial statement depreciation). ABC’s net incremental borrowing for 1999 was $120. Because this borrowing was at the end of 1999,
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Unformatted text preview: ABC’s interest expense for 1999 is the interest rate on short-term debt times short-term debt at the beginning of 1999 (end of 1998). The interest rate on ABC’s short-term debt is 10% per annum. ABC made net capital expenditures of $365 at the end of 1999. Because these capital expenditures were at the end of 1999, ABC’s depreciation expense for 1999 (also CCA) is a rate for depreciation times net fixed assets at the beginning of 1999 (end of 1998) prior to the capital expenditure . The depreciation rate is 5% per annum. ABC paid dividends to shareholders of $50 during 1999. ABC’s tax rate is 40%. ABC had a free cash flow deficit of $100 for 1999. Required : Find ABC’s rate of return on invested capital for 1999, before tax and before depreciation, using beginning of period invested capital. Was ABC a net seller of common shares or a net repurchaser of its common shares in 1999? Solution...
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