Financial Ratios and Basics of Time Value of Money

Financial Ratios and Basics of Time Value of Money (TVM)


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*Complete the problems from Module 3 and Module 4 in an Excel spreadsheet. Be sure to show your work to receive credit; no hard keys.


Problem 4-1: Compound Interest

To what amount will the following investments accumulate?

  1. 4,500 SAR invested for 8 years at 10% compounded annually
  2. 10,000 SAR invested for 10 years at 10% compounded annually
  3. 8,000 SAR invested for 7 years at 12% compounded annually
  4. 20,000 SAR invested for 6 years at 5% compounded annually


Problem 4-2: Future value calculations

You are hoping to purchase a house in the future and recently received an inheritance of 100,000 SAR.

You like to use your inheritance for a down payment for the house.

  1. If you use your inheritance in an account that generates 6% returns compounded annually, how many years will it take before your money grows to 750,000SAR?
  2. If you let your money grow for 15 years at 8%, how much will you have in your account?


Problem 4-3: Present value calculations

What is the present value of the following future amounts?

  1. 15,500 SAR received from 5 years from now at 8%.
  2. 105,500 SAR received from 10 years from now at 10%
  3. 35,500 SAR received from 15 years from now at 12%.
  4. 10,500 SAR received from 8 years from now at 7%.

Problem 4-4 Financial Ratios

The Balance Sheet and the Income Statement for ABC Manufacturing Corporation are as follows:

DATA (All amounts in SAR unless otherwise indicated, all sales are on credit and no hard keys.)

Balance Sheet:        
ABC Corporation Balance Sheet        
Cash 310      
Accounts receivable 685      
Inventories 600      
Other current assets 105      
Total current assets 1,700      
Gross fixed assets 3,750      
Accumulated depreciation -1,500      
Net fixed assets 2,250      
Total assets 3,950      
Accounts payable 350      
Short-term notes payable 250      
Total current liabilities 600      
Long-term debt 950      
Total liabilities 1,550      
Common stock (par & paid in capital) 1,050      
Retained earnings 1,475      
Total common equity 2,400      
Total liabilities and equity 3,950      
ABC Corporation Income Statement 2019      
Sales 6,000      
Cost of goods sold -3,700      
Gross profits 2,300      
Operating expenses:        
Selling and G&A expenses -820      
Depreciation expenses -340      
Total operating expenses -1,160      
Operating income (earnings before interest and taxes) 1,140      
Interest expense -200      
Earnings before taxes 940      
Income taxes -230      
Net Income 710      
Number of shares (thousands) 160      
Dividends (thousands) 120      
Market price per share 40      
Calculate the following ratios:        
Current ratio        
Acid-test ratio        
Days in receivables        
Days in inventories        
Operating return on assets        
Operating profit margin        
Total asset turnover        
Fixed asset turnover        
Debt ratio        
Times interest earned        
Return on equity        
Earnings per share        
Dividends per share        
Book value per share        


Problem 4-5: Present value of annuity calculations

What is the present value of a 5-year annuity that pays 800SAR, given a 8% discount rate?


Problem 4-6: Future value of annuity calculations

Find the future value at the end of year 5 of an annuity that pays 800SAR

per year for 5 years compounded at 8% annually. What would be the future value of this annuity?


Problem 4-7: Annuity Payments

You want to have 1,000,000SAR in 30 years by making equal end-of-the-year deposits into a tax-deferred account paying 7.75% annually. What annual amount should you deposit?


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