Winter 2009 Midterm

Winter 2009 Midterm - NAME ( last)_BORDEN_...

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NAME ( last)__ _BORDEN __ (first)__ SOLUTIONS __ STUDENT #:______________________________ CIRCLE SECTION 001 002 McGill University Faculty of Management Introduction to Financial Accounting MGCR 211 Mid-Term Examination Lecturer: Karen Zajdman-Borden Date: February 20, 2009 Time : 9:00am – 11:00am Instructions: This is a closed book exam. You are allowed dictionaries. Only non-text storing calculators are allowed This exam consists of 4 questions and a total of 20 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 40 2 18 3 24 4 18 Total 100 1
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Question 1 (40marks – 48 minutes) Below you will find the financial statements of BCE inc. for the year ended December 31, 2007. BCE is Canada’s largest communication company. Bell, the core business operation, provides the nations leading provider of wireline and wireless communications services, internet access, data services and video services to residential, business and wholesale customers. 2
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Question 1 (40 marks – 48 minutes) 3
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Question 1 (40 marks – 48 minutes) Part 1 – You are a partner of the accounting firm of Borden & Wineman, you have been asked by a client for your advice on whether or not he should invest in shares of BCE. Inc. . You are to help him investigate further on the potential investment in BCE inc. He has provided you with the ratios for the industry average in the chart below. Current ratio 1.1 to 1 Return on assets 6 % Return on Equity 12 % Days to Collect A/R 30 days Days Inventory 30 days Debt /Equity I 60% Times Interest Earned 3 times EPS N/A Required: Based on your analysis, comment on the financial health of BCE, highlight the areas you are analyzing. Using the ratios that are mentioned in the chart above, advise your client whether or not he should invest in BCE Inc. (32 marks) 4
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Question 1 (40 marks – 48 minutes) Part-1 Ratio Ratio Discussion Conclusion Current ratio 2007 5212 / 4492 =1.16 to 1 2006 3684 / 4688 =0.78 to 1 -CR checks the short term liquidity /ease of paying debt -CR improved from 2006. -Ratio in 2007 good/1.16 to 1 - this is a liquidity ratio. -Industry average 1.1 to 1 -In 2007 BCE has higher CR. -Good short term liquidity and improving. Return on assets 2007 4957 (37797+37171)/ 2 =10.82% 2006 2007 37171 =5.4% -ROA is a performance ratio, checks the return generated from using the co assets. -ROA improved by 5%, very good increase. -10.8% is a very good return -Industry average 6% -In 2007 return was 10.8% which is 4% better than industry average. -Good return, better than last
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Winter 2009 Midterm - NAME ( last)_BORDEN_...

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