Address all questions.

All of the following statements, except one, are positive statements. Which is the exception?

a

Economics is a possible undergraduate major for students who want to go to law school.

b

Economics should be a mandatory course in all Canadian colleges and universities.

c

A majority of economists argue that economics is a very relevant discipline.

d

Economics is a social science.

Dayton is a manufacturing company that is planning to expand by acquiring a business that operates in a complementary area. Dayton has identified two potential acquisitions, Echo and Foxton, that both appear to be suitable for consideration. Dayton will acquire only one company. The following financial indicators have been gathered in order to assist with the decision: Dayton Echo Foxton Revenue f500m (250m f140m Return on capital employed 18% 14% 1 1% Profit margin 26% 22% 33% Gearing 52% 44% 28% Price/Earnings ratio 12.3 16.2 14.1 (i) Discuss the impact that the acquisition of each entity would have on Dayton's financial indicators. [10] (ii) Discuss the suitability of a typical set of published financial statements for the purpose of deciding a price for a controlling interest in a target company. [6] A subsequent analysis of the two potential target companies indicates that the purchase of Echo will lead to the recognition of a much larger amount for goodwill on consolidation than the purchase of Foxton. (iii) Explain the significance of this difference between the goodwill figures. [4] [Total 20](i) Define the accumulation factor A(1,/ +h) and give a formula for the force of interest 6() per unit time in terms of the accumulation factor. [2] (ii) The force of interest 6() at time / (measured in years) is given by 6(1) =0.01/ +0.04. (a) Calculate the corresponding nominal rate of interest for the period / =1 to / = 2. (b) If an investment of 1 is made at time / = - , calculate the value to which it will have accumulated by time ? =6. [6] (iii) Calculate the accumulated value after 6 months of an investment of $100 at time 0 at the following rates of interest: (a) a force of interest of 0.05 pa (b) a rate of interest of 5% pa convertible monthly (c) an effective rate of interest of 5% pa. [3] [Total 1 1]