Summer 2010 Midterm (With Solutions)

Summer 2010 Midterm (With Solutions) - MGCR211...

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Unformatted text preview: MGCR211 NAME:________________ ___________________ STUDENT #:______________________________ McGill University Faculty of Management Introduction to Financial Accounting MGCR 211 Mid-Term Examination Lecturer: Karen Zajdman-Borden Date: May 21, 2010 Time : 4pm 7pm Instructions: This is a closed book exam. You are allowed dictionaries. Only non-text storing calculators are allowed This exam consists of 6 questions and a total of 17 pages. All Questions are to be answered on this examination paper. The space allocated to answer must be respected. Elements of an answer outside of the allocated space may be disregarded. Show your calculations and explain your reasoning. You must return this examination. Question Marks available Grade 1 32 2 15 3 9 4 12 5 21 6 11 Total 100 1 MGCR211 Question #1 (32 marks) 2 MGCR211 Question #1 (32 marks) 3 MGCR211 Question #1 (32 marks) Le Chateau is a leading Canadian retailer offering fashion forward clothing accessories and footwear to style conscious women and men. Le Chateau merchandise is sold exclusively in its 221 retail stores across Canada and 4 stores in the New York. Le Chateau has applied for a loan to the Royal Bank, as they plan to open 3 more stores in Ontario. You work for the Royal Bank at the Monkland Street branch as a loan officer, your manager has asked you whether or not you think the bank should be lending Le Chateau the $1,000,000. Required Your superior has asked you to prepare a report outlining whether or not you should be lending Le Chateau the funds. Through the use of ratio analysis you should outline your recommendation and the reasons supporting your recommendation. Below is a table to help you organize your report. (32 marks) Ratio : 2010 Ratio : 2009 Analysis Conclusion Current ratio 135068 / 43215 = 3.12 to 1 127788 / 42168 = 3.01 to 1 The ratio seems strong as it is above 2 to 1. The ratio improved from 3.01 to 3.12. Liquidity ratio measures ability to pay current debt Strong liquidity. Acid test 23411+45000+2454 43215 70865 / 43215 = 1.64 to 1 10034+56643+4791 42168 71468 / 42168 = 1.69 to 1 The ratio seems strong as it is well above 1 to 1. The ratio went down very slightly. Liquidity ratio measures ability to pay current debt with only very liquid current assets. Strong ratio, not a problem that it went down by .05 ROA 29837 (236032 + 216431)/2 = 13.2% 38621 215431 =17.8% Ratio yeilds a very good return. Return went down from last year by. ROA measures the return that assets generate. Performance is still strong even though there was a decrease in return. ROE 29837 (157221 + 142414)/2 =19.91% 38621 142414 = 27.11% Ratio yields a very strong return from the shareholders Return went down from last year substantially....
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Summer 2010 Midterm (With Solutions) - MGCR211...

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