Fin500
Module 04: Critical Thinking
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Critical Thinking: Financial Ratios and Time Value of Money
Complete the following problems:
· Problem 4-1: Ratio analysis
· Problem 4-2: Market value ratios
· Problem 4-3: Future value calculations
· Problem 4-4: Present value calculations
· Problem 4-5: Compound annuity calculations
· Problem 4-6: Present value of annuity calculations
· Problem 4-7: Compound interest at non-annual rates
Complete the problems in a Word document. Be sure to show your work to receive credit.
Module 4 Critical Thinking Assignment
Ratio Analysis and Time Value of Money
Problem 4-1
RATIO ANALYSIS (Chapter 4)
The Balance Sheet and the Income Statement for XYZ Manufacturing Corporation are as follows:
DATA (All amounts in SAR unless otherwise indicated, and all sales are on credit.)
Balance Sheet:
Cash
400,000
Acct/Rec
725,000
Inventories
650,000
Current assets
1,775,000
Net fixed assets
690,000
Total assets
2,465,000
Accts/Pay
265,000
Accrued expenses
310,000
Short-term N/P
80,000
Current liabilities
655,000
Long-term debt
950,000
Owner’s equity
860,000
Total liabilities and owners’ equity
2,465,000
Income Statement:
Net sales
9,550,000
COGS
4,866,000
Gross profit
4,684,000
Operating expenses
2,984,000
Net operating income
1,700,000
Interest expense
45,000
EBT
1,655,000
Income taxes
662,000
Net income
993,000
Calculate the following ratios:
Current ratio =
Acid test ratio =
Debt ratio =
Operating profit margin =
Operating return on assets =
Return on equity =
Times interest earned =
Average collection period =
Inventory turnover =
Fixed asset turnover =
Total asset turnover =
Problem 4-2
MARKET-VALUE RATIOS (Chapter 4)
Jeddah Industries has a price earning ratio of 11X.
a. If Jeddah’s earnings per share are SAR 42.00, what is the price per share of Jeddah’s stock?
b. Using the price per share you calculated in part a, determine the price / book ratio if Jeddah’s equity-book value is 17.40.
Solution
a. Price per share
b. Price/book ratio
Problem 4-3
FUTURE VALUE CALCULATIONS (Chapter 5)
To what amount will the following investments accumulate?
Annual
Amount Invested (SAR)
Interest
Years
80,000
5%
5
60,000
4%
12
35,500
12%
4
97,000
7%
15
Problem 4-4
PRESENT VALUE CALCULATIONS (Chapter 5)
What is the present value of the following future amounts?
Annual
Future Amount (SAR)
Interest
Years
900,000
5%
5
478,000
4%
12
279,000
12%
4
440,000
7%
15
Problem 4-5
COMPOUND ANNUITY CALCULATIONS (Chapter 5)
What is the accumulated future sum of each of the following Ordinary annuities?
Annual
Present Amount (SAR)
Interest
Years
20,000
5%
5
42,000
4%
12
8,000
12%
4
19,500
7%
15
Problem 4-6
PRESENT VALUE OF ANNUITY CALCULATIONS (Chapter 5)
What is the present value of each of the following Ordinary annuities?
Annual
Present Amount (SAR)
Interest
Years
20,000
12%
5
42,000
5%
12
8,000
4%
4
19,500
2%
5
Problem 4-7
COMPOUND INTEREST AT NON-ANNUAL RATES (Chapter 5)
Given the annual interest rates below, and the compounding period indicated,
calculate the FUTURE VALUE for each item.
Annual
Compounding
Present Amount (SAR)
Interest
Years
Period
20,000
6%
5
Semi-annually
42,000
4%
12
Quarterly
8,000
12%
4
Monthly
