What is the difference between EFN and sustainable growth rate?.

Concept Questions (5marks each):

Your answers should be in full sentences and 1-2 paragraphs each.

1. Suppose you own shares in a company. The current price per share is $25. Another company has just announced that it wants to buy your company and will pay $35 per share to acquire all the outstanding shares. Your company’s management immediately begins fighting off this hostile bid. Is management acting in the shareholders’ best interest? Why or why not?

2. Why is it important that we sub-divide cash flow into its three categories: operations, finance, and investing? If a company’s operating cash flow has been negative for several years, is that a good sign or a bad sign? Explain.

3. What is the difference between EFN and sustainable growth rate? Give a hypothetical situation where one measure would be a more important measure to a company’s management than the other.

4. You and a friend are an advisor to a growing corporation with some employees. Your friend suggests that to eliminate the principle-agent problem, all employees must also be granted stock. Do you agree or disagree with this advice? Explain

Problem-solving (10marks):

1. A proposed cost-saving device has an installed cost of $111,700. It is in Class 43 (30% rate) for CCA purposes. It will function for 6-years, at which time it will have no value.

a. Calculate UCC at the end of 6-years.

b. What are the tax implications when the asset is sold? Explain and state any assumptions you make.

What is the difference between EFN and sustainable growth rate?



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