ENSC201 Test 2 - Nov 28, 2007               ANSWERS   Grade:___/20

Please answer only on the sheets provided. No collaboration or books allowed, calculators permitted. Questions are equal in value.
Duration: 1/2 hour (MAX). You are NOT expected to finish this test.

Part 1: Define the following terms (20 questions, 1 point each):
  1. Bank Prime and what the rate is today: best interest rate to the best customers by commercial banks. it is presently 6.25%
     
  2. Corporation: a legally incorporated tax-paying entity
     
  3. CCPC: Canadian Controlled Private Corporation
     
  4. Public Company: a company that has exceeds a certain number of shareholders AND that is obligated to file financial and other reports on SEDAR.
     
  5. Call Option: the right to BUY a specified NUMBER of shares at a SPECIFIED PRICE for a SPECIFIED period of time.
     
  6. Reverse Take-Over (RTO): this happens when a company takes over another company by issuing a sufficient number of shares such that the take-over company's shareholders end up controlling the merged entity.
     
  7. IPO: An Initial Public Offering of Shares by a company to the general public. This takes place when a company goes from being private to being public.
     
  8. Patent: a monopoly granted by a specific COUNTRY on an invention. It gives the holder the RIGHT to exclusively make/sell his invention. It has to be new, useful and non-obvious.
     
  9. Trademark:  a distinctive mark - registered or unregistered - granted by a COUNTRY - could be color, logo, design, sound, smell, taste, etc that uniquely identifies a company's product or service.
     
  10. Fiscal Year End: The financial year end of a Corporation (must be a Corporation) arbitrarily chosen by the Board of Directors (can be any date. Does NOT have to be a month-end or calendar year end)
     
  11. Financial Derivative (give example): A financial instrument or agreement created by the financial markets, e.g. options, futures, options on futures
     
  12. Diluted EPS: Earnings per Share calculated by taking the total earnings divided by ALL issued shares AND all shares that could be issued if ALL options and warrants in existence are exercised.
     
  13. Discounted Cash Flow:  The present value of a future series of cash flows using a certain DISCOUNT rate, i.
     
  14. Futures Contract: An agreement to MAKE or TAKE delivery of a specific COMMODITY (almost anything including Farm products, currencies, minerals, etc). Eg Gold, Oil, C$
     
  15. Stock Exchange: A self-regulated organization (could be a private or public company itself) which provides a market through which public companies can trade their shares if they meet certain STANDARDS.
     
  16. SRED: Scientific Research and Experimental Development Tax Credits - a government tax credit for companies that do research. Could be as high as 68% of direct expenditures.
     
  17. Market Cap (give example): # of share X Price per Share. E.g. Company C has 4M shares trading at $2/share. MC = $8M
     
  18. Book Value: The value of a company calculated by taking all assets - all liabilities.
     
  19. Insider Trading: Buying or selling of shares in a public company by Insiders. Insiders are directors, senior officers and others with privileged information.
     
  20. DOW Index: A arbitrarily defined basket of stocks - in the case of the DOW this consists of 30 of America's best companies. (Like a mutual fund.)
Part 2: Short Answers (10 questions, 1 point each):
  1. Answer True or False:
    T__ In a Corporation, the Board of Directors is legally liable for its actions
    T__ The Shareholders of a public company have no legal liability
    T__ The Board of Directors is appointed by the Shareholders
    T__ Management of the Company is appointed by the Directors
    F__ Public Companies must list their shares on a stock exchange
     
  2. Three reasons why intellectual property management is so important to technology companies are:
    a. Valuable Asset
    b. Attracts Investors
    c. Competitive advantage, etc
     

  3. Companies can defend themselves against patent suits in which of the following ways (mark all that apply) :

    X__ by searching for, and finding, prior art
    X__ showing that the inventor committed fraud
    X__ having excellent legal counsel
    X__ making out-of-court settlements
    X__ getting as many patents as possible on their own IP
    (all the above apply)
     

  4. Your company buys a patent for $1 million by issuing shares to the vendor of the patent.
    How would you record this on the financial statements (P&L and Balance Sheet)?
    The P&L is NOT affected.
    Balance sheet: Shows $1M in additional share capital and $1M in additional assets (hence, it still balances)

     
  5. Your company has Total Assets of $500,000. You have $100,000 in cash in the bank.
    You owe your suppliers and creditors $500,000 and you have 1 million shares outstanding that were issued for $0.10 each.
    The net equity on the balance sheet is: $__0 and the break-up value of each share is: $___0.
     
  6. You are offered a loan to make a high risk investment. You have two choices. Which is the least expensive?
    __ a) an annual interest rate of 26%, compounded annually
    X__ b) an annual rate of 24%, compounded monthly
     
  7. Write the equation for calculating the Future Value, F, of a Present amount, P, given an interest rate, i, per period over n periods?

       F = P*(1+i)^n
     
  8. What is the approximate annual rate of return for each of the following:
    a) You buy shares in RIM and you double your money each year for 3 years: 100 % (must be exact; too obvious)
    b) You are an "angel" investor. You invest $100K in an SFU spinoff and get back 10 times your investment  in 5 years: _58% +/- 10% acceptable
    c) You put $1,000 into your RRSP and after 5 years, it has doubled: _15% +/- 5% acceptable
    (the above are easy to do using the rule of 72, or trial & error approximations)
     

  9. a) Manufacturing (not logging!) is the largest single business sector in Canada. Every $1 of manufacturing output creates more than:
    __ $2 in economic activity
    X__ $3 in economic activity  (as noted in What's Hot)
    __ $5 in economic activity

    b) What percentage of  GDP is generated by the manufacturing sector?
    __ 5-10%
    X__ 10-20%  (it is 16%)
    __ 20-40%
    __ 40-60%
     

  10. With regard to product life cycles, when is it a good time to introduce replacement products to the market?

    The best time to introduce replacement products is during the mature stage of the predecessor product.
    Or, could also say before the competition introduces its next product.
    Or, could say when the company is generating profit and cash flow from current products.

Bonus points: (0.5 per question):

1. Why do stocks rally when a rate cut is expected? Because it makes stocks (and stock returns) more attractive than leaving cash in savings accounts.

2. Why are the markets presently bearish? Because of credit worries, i.e. collapse of financial markets, banking crisis, etc

3. What did Stephen Robinson say about raising funds and what investors invest in? give credit if the answer seems plausible

4. What was the main thing you learned from Basil Peter's talk? give credit if the answer seems plausible