Module 4 Critical Thinking Assignment:

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?

a. 4,500 SAR invested for 8 years at 10% compounded annually

b. 10,000 SAR invested for 10 years at 10% compounded annually

c. 8,000 SAR invested for 7 years at 12% compounded annually

d. 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.

a. 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?

b. 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?

a. 15,500 SAR received from 5 years from now at 8%.

b. 105,500 SAR received from 10 years from now at 10%

c. 35,500 SAR received from 15 years from now at 12%.

d. 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
2019
Cash310
Accounts receivable685
Inventories600
Other current assets105
Total current assets1,700
Gross fixed assets3,750
Accumulated depreciation-1,500
Net fixed assets2,250
Total assets3,950
LIABILITIES (DEBT) AND EQUITY
Accounts payable350
Short-term notes payable250
Total current liabilities600
Long-term debt950
Total liabilities1,550
Common stock (par & paid in capital)1,050
Retained earnings1,475
Total common equity2,400
Total liabilities and equity3,950
ABC Corporation Income Statement2019
Sales6,000
Cost of goods sold-3,700
Gross profits2,300
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 taxes940
Income taxes-230
Net Income710
Number of shares (thousands)160
Dividends (thousands)120
Market price per share40
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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