Financial Ratios and Basics of Time Value of Money
Financial Ratios and Basics of Time Value of Money (TVM)
*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?
- 4,500 SAR invested for 8 years at 10% compounded annually
- 10,000 SAR invested for 10 years at 10% compounded annually
- 8,000 SAR invested for 7 years at 12% compounded annually
- 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.
- 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?
- 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?
- 15,500 SAR received from 5 years from now at 8%.
- 105,500 SAR received from 10 years from now at 10%
- 35,500 SAR received from 15 years from now at 12%.
- 10,500 SAR received from 8 years from now at 7%.
Problem 4-4 Financial Ratios |
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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.) |
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Balance Sheet: | ||||
ABC Corporation Balance Sheet | ||||
2019 | ||||
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 | |||
LIABILITIES (DEBT) AND EQUITY | ||||
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 | ||||
Price/Earnings | ||||
Book value per share | ||||
Market/Book |
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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