1. Explain how ROCE can capture both profitability and efficiency level of a business. Demonstrate (with an example) how ROCE of a business can be improved even if the company is not generating enough operating profit margin.

(10 marks)

2. Joan Messineo borrowed 15,000 at a 14% annual rate of interest to be repaid over 3 years. The loan is amortized into three equal annual end-of-year payments.

1. Calculate the annual end-of-year loan payment.
2. Prepare a loan amortization schedule showing the interest and principal breakdown of each of the three loan payments.
3. Explain why the interest portion of each payment declines with the passage of time.

(13 marks)

3. Upon completion of her introductory finance course, Marla Lee was so pleased with the amount of useful and interesting knowledge she gained that she convinced her parents, who were wealthy alums of the university she was attending, to create an endowment. The endowment is to allow three needy students to take the introductory finance course each year in perpetuity. The guaranteed annual cost of tuition and books for the course is 600 per student. The endowment will be created by making a single payment to the university. The university expects to earn exactly 6% per year on these funds.

1. How large an initial single payment must Marlas parents make to the university to fund the endowment?
2. What amount would be needed to fund the endowment if the university could earn 9% rather than 6% per year on the funds?