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

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Ratio Analysis and Time Value of Money

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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
Accrued expenses
Short-term N/P
Current liabilities
Long-term debt
Owner’s equity
Total liabilities and owners’ equity
265,000
310,000
80,000
655,000
950,000
860,000
2,465,000
Income Statement:
Net sales
COGS
Gross profit
Operating expenses
Net operating income
Interest expense
EBT
Income taxes
Net income
9,550,000
4,866,000
4,684,000
2,984,000
1,700,000
45,000
1,655,000
662,000
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