CT MOD4 (4)

Fin500

Module 04: Critical Thinking

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